hokuto ken no wallpaper

Transcription

|| DETERMINATION ||
Annual Report 2010
SEGA SAMMY HOLDINGS
|| INFORMATION ||
Basic information about the SEGA SAMMY Group
How to Reach Us
Our History
About Us
Structure of the Pachinko and Pachislot Machine Market
Market Conditions of the Group’s Business Segments
Market Data
I N F OR M AT IO N
The SEGA SAMMY Group uses various communication tools to facilitate interactive communication with shareholders,
investors, and a wide range of other stakeholders. This section explains the functions of our communication tools.
How to reach us
Annual Report 2010
Investor Relations Web Site
In order to better understanding among shareholders and investors, Annual
On the investor relations (IR) page of the SEGA SAMMY HOLDINGS
Report 2010 includes multifaceted information about the SEGA SAMMY
web site, we post comprehensive, reliable information for sharehold-
Group’s business lines, business conditions, and business results. We have
ers and investors promptly. This includes timely disclosures as well as
included an index below so that readers can access information easily.
financial settlement figures in Excel format. For individual investors,
the “Individual Investors” section and other sections provide an easy-
1
to-follow introduction to the Group’s business lines. Further, we have
Those less familiar with the SEGA SAMMY Group’s business
lines and business conditions, start here.
Overview of Business Lines
INFORMATION p. 2–3
established a mobile IR web site accessible from mobile phones.
The official SEGA SAMMY HOLDINGS web site
http://www.segasammy.com/
About Us
The Market Conditions of the SEGA SAMMY Group
u
INFORMATION p. 4–13
Structure of the Pachinko and Pachislot Machine Market,
Market Conditions of the Group’s Business Segments,
Market Data
The Market Position of the SEGA SAMMY Group
DETERMINATION p. 28–29
2
Timely disclosures
Financial settlement figures (Excel format)
Information for individual investors
IR tools
Inquiries
Bird’s Eye View
The IR page of the SEGA SAMMY HOLDINGS web site
http://www.segasammy.co.jp/english/ir/
T hose more familiar with the SEGA SAMMY Group,
start here.
Fiscal 2010 Summary
DETERMINATION p.10–13
Consolidated Financial Highlights, Discussion with Management
The Group’s CSR Report
Business Strategies
DETERMINATION p.12–23
This report, Annual Report 2010, touches
Discussion with Management
on some of the Group’s corporate social re-
Fiscal 2010 Business Initiatives
sponsibility (CSR) activities in the Corporate
Social Responsibility section on pages 46
Overview by Business Segment
through 48. A broader and more detailed
Corporate Governance and CSR Activities
picture of these activities is available in the
SEGA SAMMY Group CSR Report 2010.
Corporate Governance, Corporate Social Responsibility
Detailed Financial Information
Financial Section
SEGA SAMMY Group
CSR Report 2010
I N F OR M AT IO N
Our history
1950
1951 Founded
1960
1960Incorporated
(Company name: Nihon Goraku Bussan Co., Ltd.)
1964Started production of amusement arcade machines.
1965 Started operation of amusement centers.
Changed company name to SEGA ENTERPRISES LTD.
1970
UFO Catcher
1975 Established Sammy Industry Co., Ltd.
1978 Began game machine development.
1980
1983Launched SG-1000 8-bit home video game platform.
1982Began sales and marketing of pachislot machines.
1985Launched Hang On, the world’s first force feedback game.
Launched UFO Catcher.
1986Registered stock on over-the-counter (OTC) market.
1988Listed stock on the second section of Tokyo Stock Exchange.
Launched Mega Drive16-bit home video game platform.
1989Began sales of Aladdin single-bonus hitter pachislot machine.
1990
1990Listed stock on the first section of Tokyo Stock Exchange.
Launched R-360, the world’s first amusement arcade machine that could rotate 360 degrees in all directions.
1990Began development and sales of game software.
1991Launched first title in the Sonic the Hedgehog series.
1991 Moved head office to Toshima-ku, Tokyo.
Aladdin
pachislot machine
© Sammy
1993Launched Virtua Fighter, the world’s first amusement arcade
3D computer graphics fighting game.
1994Launched SEGA Saturn 32-bit home video game platform.
1995 Began sales of pachinko machines.
1995 Launched Print Club with ATLUS Co., Ltd.
1997Changed company name to Sammy Corporation.
1996Opened TOKYO JOYPOLIS rooftop theme park in Tokyo’s
Odaiba area.
2000
1998 Launched Dreamcast home video game platform.
1999 Registered stock on OTC market.
Launched GeGeGe No Kitaro, the first pachislot machine
equipped with an LCD.
2000Changed company name to SEGA CORPORATION.
2000Made RODEO Co., Ltd. (formerly Barcrest Co., Ltd.),
a subsidiary.
Sonic the Hedgehog
© SEGA
2001Listed stock on the first section of Tokyo Stock Exchange.
Completed Kawagoe Factory.
2003Launched The King of Beetles “MUSHIKING”, the world’s
first kids’ card game.
2003Launched Hokuto No Ken pachislot machine, which set
a new record for unit sales.
Hokuto No Ken
pachislot machine
© Buronson & Tetsuo Hara
© Sammy
2004 Establishment of SEGA SAMMY HOLDINGS INC.
2005 Acquired all outstanding shares of The Creative Assembly Ltd. (SEGA).
2006 Made SPORTS INTERACTIVE Ltd. a wholly owned subsidiary (SEGA).
Entered strategic business alliance with Sanrio Company, Ltd. (SEGA SAMMY HOLDINGS).
2007 Made TAIYO ELEC Co., Ltd., a subsidiary (Sammy).
2008Reached agreement with Sanrio Company, Ltd., to jointly develop new characters (SEGA SAMMY HOLDINGS).
2009 Made GINZA CORPORATION a subsidiary (Sammy).
Established SEGA SAMMY VISUAL ENTERTAINMENT INC.* (SEGA SAMMY HOLDINGS).
Established Bakugan Limited Liability Partnership (Bakugan LLP) (SEGA SAMMY HOLDINGS and Group companies).
* Currently MARZA ANIMATION PLANET INC.
SEGA SAMMY HOLDINGS ANNUAL REPORT 2010
I N F OR M AT IO N
About us
The SEGA SAMMY Group is a comprehensive entertainment company encompassing businesses throughout
the entertainment field. These include the Pachinko and Pachislot Machine Business segment, the Amusement
Machine Sales Business segment, the Amusement Center Operations segment, and the Consumer Business
segment, which is engaged in the plan, production and sale of home video game software, toys, network games
for mobile phones and PCs, and animation.
In Japan and overseas, we provide highly original entertainment to a wide range of age groups, from kids to
adults. At the same time, through the mutual use of content and management resources within the Group,
SEGA SAMMY creates synergies and pioneers businesses in new areas of the entertainment field.
HATSUNE MIKU Project DIVA Arcade
© SEGA
© Crypton Future Media, Inc.
VOCALOID is a trademark or a registered
trademark of Yamaha Corporation, Japan.
Hatsune Miku is a computer software by
singing synthesis.
Pachislot Psalms of Planets Eureka Seven
© 2005 BONES / Project EUREKA • MBS
© Sammy
© 2009 NBGI
Pachinko and Pachislot
Machine Business
Amusement Machine
Sales Business
Amusement Center Operations
The main pillar of the Group’s earnings, this
By launching a series of mold-breaking products,
chine Sales Business segment gives this business
business segment comprises the pachinko ma-
this business segment has helped drive mar-
segment the advantage of being able to offer a
chine business and the pachislot machine busi-
ket development. As well as having particular
lineup of in-house products that meets diverse
ness. Entering the market in 1982, the pachislot
strength in network-enabled game machines and
user needs. Moreover, as a point of contact with
machine business established an industry-
other high-value-added products, the business
users, the business segment collects precise
leading position by introducing products with
segment has an extensive product lineup that ca-
market feedback, which the Group draws on
innovative gameplay. We made our foray into
ters to diverse user needs. Also, the Amusement
when developing amusement arcade machines.
the pachinko machine market in 1995 and have
Machine Sales Business segment is introducing
Currently, the business segment is improving
been building our presence steadily ever since
a new revenue-sharing business model that is
profitability by closing amusement centers with
by boosting development capabilities.
invigorating the amusement market.
inadequate profitability or potential.
Net Sales/Operating Income
Net Sales/Operating Income
Billions of yen
Billions of yen
Billions of yen
Close collaboration with the Amusement Ma-
Net Sales/Operating Loss
Billions of yen
Billions of yen
Billions of yen
200
40
80
12
100
10
150
30
60
9
50
5
100
20
40
6
0
0
50
10
20
3
–50
–5
0
0
0
–100
0
08
■ Net sales (left) TOKYO JOYPOLIS
09
Operating income (right)
10
FY
08
■ Net sales (left) 09
Operating income (right)
10
FY
08
Operating loss (right)
10
–10
FY
Net Sales by Business Segment
Operating Income (Loss) by Business Segment *
¥384.6 billion
■ Pachinko and Pachislot Machine Business
■ Amusement Machine Sales Business
■ Amusement Center Operations
¥2.8 billion
0.7%
¥121.5 billion
31.6%
¥54.7 billion
14.2%
¥45.1 billion
11.7%
¥160.3 billion
41.7%
¥36.7 billion
¥6.3 billion
15.1%
¥7.0 billion
16.7%
¥ 29.5 billion
70.6%
¥0.3 billion
¥–1.3 billion
¥–5.2 billion
0.7%
–3.1%
■ Consumer Business
■ Other businesses
■ Corporate and eliminations
* Composition of operating income (loss) by business segment
is net of corporate and elimination.
© SEGA
0
0
BAKUGAN
© SEGA TOYS / SPIN MASTER / BAKUGAN 2 PROJECT • TX
ANPANMAN
© Takashi Yanase /
ANPANMAN Project
Consumer Business
Home video game software The originator of
Toys SEGA TOYS CO., LTD., is responsible for
Animation TMS ENTERTAINMENT, LTD.,
many famous titles such as the Sonic series,
the Group’s toys business. As well as offering
is engaged in the production of numerous
SEGA enjoys one of the highest levels of over-
such perennial favorites as Anpanman toys,
high-quality works of animation in Japan
seas unit sales among Japan’s software publish-
this business is opening up new markets by
and overseas. The company also sells the
ers. The Consumer Business segment is further
launching edutainment toys and products
roughly 9,000 episodes of animation that it
improving its competitiveness and earning
for adults. And, the company markets a large
owns to terrestrial and satellite television broad-
power by enhancing the quality of its titles and
number of toys featuring SEGA SAMMY Group
casters. Furthermore, using characters from
increasing development efficiency through re-
content. BAKUGAN, a toy jointly developed by
these animation series, it grants product com-
ductions in its number of titles, R&D expenses,
SEGA TOYS and Canadian manufacturer Spin
mercialization rights and videogram licenses.
and content production expenses.
Master Ltd. accounts for related product sales
Networks Business SEGA and Sammy
and animation broadcasts in approximately
NetWorks Co., Ltd., provide game content for
120 countries.
mobile phones and PCs in this business, which
is posting solid business results. Our networks
business is strengthening profitability through
Net Sales/Operating Income (Loss)
Billions of yen
Billions of yen
160
8
80
4
0
0
–80
–4
the introduction of pay-per-use while building
its earnings platform by providing new services
that extend its customer group.
–160
08
10
–8
FY
Operating income (loss) (right)
I N F OR M AT IO N
Structure of the Pachinko and Pachislot Machine Market
In order to better understanding of the conditions that the Group faces in the pachinko and pachislot machine
market, this section explains the market’s highly distinctive structure.
Pachinko & Pachislot
Shares of Pachinko and Pachislot
in Japan’s Leisure Market
Japan’s
Leisure Market1
¥69.5 trillion
Pachinko CR SOUTEN-NO-KEN
© 2001 Buronson & Tetsuo Hara
© Approved No. SAG-309
© Sammy
Games / Publicly Operated Sports /
Eating and Drinking
¥24.7trillion 35.5%
2
Hobbies
Tourism
¥9.4trillion 13.5%
Sports
¥4.1trillion
5.9%
Source: White Paper on Leisure Industry 2010,
Japan Productivity Center
1 2009.
2 Total amounts of hall ball and token rentals
Pachislot Psalms of Planets
Eureka Seven
© 2005 BONES / Project
EUREKA • MBS
© Sammy © 2009 NBGI
About Pachinko and Pachislot
Pachinko machines trace their origins to bagatelle boards, imported to Japan almost a century ago,
in the 1920s. In the 1930s, these evolved into vertically positioned boards studded with numerous pins. By manipulating a handle, players mechanically fire steel pachinko balls with diameters
of about 11 mm onto the board. When the balls fall into the tulip-shaped devices or the jackpot
mouth, additional pachinko balls are won from the jackpot.
Meanwhile, the roots of pachislot are said to be slot machines brought from the United States
after the end of the Second World War. The 1960s saw the emergence of modified slot machines
Pachinko and Pachislot Machine
Market Scale*
requiring a certain level of playing skill because they incorporated buttons that allowed players to
stop the reels spinning. Subsequently, these machines were upgraded to the current box-cabinets
and spread to pachinko halls throughout Japan.
The functions and gameplay of pachinko and pachislot machines have continued to evolve,
creating a uniquely Japanese form of entertainment. Today, machines continue to entertain fans
¥1,204.8 billion
through varied, dynamic staging based on liquid crystal displays (LCDs) and a range of other
electronic components.
Market Size
Pachinko machines
¥978.9 billion
Pachislot machines
¥225.8 billion
Source: Yano Research Institute Ltd.
* Fiscal 2009 (settlement dates from July to June)
In Japan, the pachinko and pachislot machine market is huge. Comprising the ball rental fees and
token rental fees that pachinko halls charge players, it accounts for revenues of ¥21.1 trillion1, or
about 30.4% of the leisure market. Further, sales in the pachinko and pachislot machine market are
worth about ¥1.2 trillion2. The evolution of this market is extending the boundaries of the pachinko
and pachislot machine industry to include new industries. For example, the increasing use of advanced technologies for pachinko and pachislot machines is strengthening ties with manufacturers
of LCDs, light-emitting diodes, sensors, and other components. Similarly, the growing automation
of pachinko halls is supporting an industry that produces peripheral equipment for pachinko and
pachislot machines.
1 2009. Source: White Paper on Leisure Industry 2010, Japan Productivity Center
2 2009. Source: Yano Research Institute Ltd.
Competitive Conditions of the Pachinko and Pachislot Machine Market
There are 32 pachinko machine manufacturers3 and 71 pachislot machine
manufacturers4 participating in the market. Realizing hit products is vital. As a
result, manufacturers’ shares of the market fluctuate significantly depending
on whether or not they have hit titles. Recent years have seen an increasingly
marked trend toward manufacturers with brands or machines that promise
high utilization rates claiming the lion’s share of orders. Consequently, the
leading companies have become firmly entrenched and as a group dominate
a growing share of the market.
3 As of March. 31, 2010. Member companies of Nikkoso, a pachinko machine manufacturers’ industry association
4 As of June 30, 2010. Member companies of pachislot manufacturing network
Overview of the Regulatory Environment
Approval Process for Pachinko and Pachislot Machines
1. Application for prototype testing
Before they launch a pachinko or pachislot machine, manufacturers are re-
prototype testing
3. Application for prototype testing
Establishments Control Law. First, manufacturers must file an application for
Public Safety
Commission
in Each Prefecture
4. Issuance of certification of
prototype testing with the Security Electronics and Communications Technology Association. They must acquire certification that such elements as materi-
Security Electronics and
Communications
Technology Association
2. Issuance of certification for
quired to navigate an approval process in accordance with the Entertainment
prototype testing
Machine Manufacturers
als, functions, and gameplay are in conformance with the requirements of the
5. Contract/Delivery
8. Commencement
of operations
Pachinko Halls
Entertainment Establishments Control Law. Then, the machines are verified by
6. Application for approval
the Public Safety Commission in each prefecture. Only then can they be sold
7. Approval
District Police Station
and supplied to pachinko halls. Before using machines in operations, pachinko
halls must acquire approval from district police stations.
Cyclical Changes in Market Conditions Due to Regulatory Revision
The Entertainment Establishments Control Law and the internal regulations
Cyclically Changing Market Conditions
Thousands of units
5,000
2004 regulatory revision
1996 regulatory revision
of industry bodies have been frequently revised with a view to the sound
development of the pachinko and pachislot machine industry. These changes
Shrinking of the pachinko machine market
4,000
Pachinko machine
market recovers
in regulations and internal regulations, and pachinko and pachislot machine
manufacturers’ innovations in response to them, have driven cyclical changes
3,000
in market conditions. In the 1990s, changes in regulations and internal regulations aimed at controlling excessive gambling elements caused a sudden
Pachislot machine market
decelerates dramatically
2,000
slump in the pachinko machine market. On the other hand, these changes
triggered rapid expansion of the pachislot machine market. More recently,
Triggers expansion
of the pachislot
machine market
1,000
July 2004 saw the enforcement of a revision of regulations pertaining to the
Entertainment Establishments Control Law (2004 regulatory revision), which
initiated major changes that continue to affect market conditions.
0
94
95
96
97
■ Pachinko machine unit sales F or further details, please see “Market Conditions of the Group’s Business
Segments” on pages 6 and 7.
98
99
00
01
02
03
04
05
06
07
08
09
Fiscal years (based on the settlement periods of respective fiscal years)
■ Pachislot machines unit sales
Fiscal years (settlement dates from July to June)
I N F OR M AT IO N
Market Conditions of the Group’s Business Segments
The Market
Pachinko and Pachislot Machine Market
Long-Term Trends−from the 1990s to 2005
After peaking in the mid-1990s, the pachinko and pachislot machine market
Pachinko and Pachislot−Player Numbers and Market Size
Thousands
Trillions of yen
25,000
50
20,000
40
15,000
30
10,000
20
5,000
10
contracted. This trend was attributable to casual players leaving the market
because an increasing number of machines featured more complicated
gameplay or strong gambling elements. Fiercer competition among pachinko
halls trying to attract a dwindling number of users resulted in a shakeout of
small pachinko halls, and the number of halls continued to decrease.
In a bid to secure users, pachinko halls frequently introduced new ma-
chines. Therefore, unit sales of pachinko and pachislot machines remained
0
solid. In addition, the prices of machines rose as they began to include such
high-value-added features as larger LCDs. Consequently, the pachinko and
pachislot machine market generated higher revenue levels. The turning point
in market conditions came in 2006 due to the 2004 regulatory revision.
98
99
00
01
02
03
04
05
06
07
08
1. From 2006 to Mid-2009
0
CY
■ Number of pachinko and pachislot players (left) Pachinko and pachislot machine market size (right)
Source: White Paper on Leisure Industry 2010, Japan Productivity Center
Pachinko and Pachislot Machines−Unit Sales and Market Size
Thousands of units
Following the July 2004 Regulatory Revision
09
Billions of yen
5,000
1,000
4,000
800
3,000
600
2,000
400
1,000
200
The 2004 regulatory revision extended the scope of gameplay, giving the
pachinko machine market a new lease of life. These favorable market conditions continued until mid-2009.
Meanwhile, the 2004 regulatory revision narrowed the scope of game-
play for pachislot machines, thereby lowering their gambling elements.
During the three-year interim measures period in which the sale of pachinko
and pachislot machines compliant with the previous regulations was permitted, the 2004 regulatory revision did not significantly affect the pachislot
machine market. However, the interim measures period ended in the fall of
2007. As pachinko halls began introducing pachislot machines compliant
with the new regulations in stages, pachislot users left the market in growing
numbers due to the difference in gameplay.
During the same period, pachinko halls’ financial positions worsened
0
98
99
00
01
02
03
04
05
06
07
08
09
0
■ Pachinko machine unit sales (left)
■ Pachislot machine unit sales (left)
━ Pachinko machine market size (right)
━ Pachislot machine market size (right)
Pachinko and Pachislot Installations
Thousands of units
5,000
4,000
primarily because there were fewer users, and they were spending less on
pachinko and pachislot per year. As well as further steepening the decline
in pachinko hall numbers, the effect of this deterioration was passed on to
pachinko and pachislot machine manufacturers.
3,000
2,000
1,000
As the decline in annual turnover * shows, the trend toward less frequent
replacement of mainly pachislot machines became more pronounced as
pachinko hall operators curbed capital investment.
0
98
99
00
■ Pachinko machine installations
■ Pachislot machine installations
Source: National Police Agency
01
02
03
04
05
06
07
08
09
Because it took time for manufacturers to develop pachislot machines
that captivated users, pachinko machines increasingly replaced pachislot
Annual Turnover * and Pachinko Hall Numbers
Times
Halls
2.0
20,000
1.5
15,000
1.0
10,000
0.5
5,000
machines.
For pachinko machines, pachinko hall operators sought reliable returns
on investments by introducing more machines with high utilization rates.
As a result, orders concentrated on the leading manufacturers.
* Annual turnover = Annual unit sales ÷ Machine installations. The number of times pachinko and pachislot
machines are replaced each year.
Following the July 2004 Regulatory Revision
2. Since Mid-2009
0
98
99
00
01
02
03
04
05
06
07
08
0
09
From mid-2009, the favorable conditions in the pachinko machine market
■ Pachinko hall numbers (right)
and the sluggishness in the pachislot machine market began to show signs
━ Pachislot machine annual turnover (left)
of change.
Sources: The Company has calculated annual turnover based on data from the National Police Agency
━ Pachinko machine annual turnover (left)
* Annual turnover = Annual unit sales ÷ Machine installations
and Yano Research Institute Ltd. Pachinko hall numbers are from National Police Agency.
“Max-type” pachinko machines, which have a strong gambling ele-
ment, began to account for an increasing share of pachinko machine installations from 2008. This began to push casual users out of the market.
Aiming to counter this trend and broaden their user bases, pachinko hall
Annual Spending by Users
Yen
50,000
40,000
operators lowered ball rental fees and launched “one yen pachinko” marketing strategies. As of March 2010, pachinko machines covered by these
marketing strategies accounted for roughly 20% of total pachinko machine
30,000
20,000
installations. Although the market strategies based on low ball rental fees
have achieved a certain degree of success in widening user bases, the
10,000
resulting decrease in users’ average spending on pachinko machines has
undermined the profitability of pachinko halls markedly. Further, business
management aimed at achieving rapid return on investment in the face
0
99
00
01
02
03
04
05
06
07
08
09
━ Annual spending on pachinko by users
━ Annual spending on pachislot by users
of pachinko halls’ worsening business results is causing users to leave the
market and creating a vicious circle. As a result of these trends, the market
for new pachinko machine installations, robust until the second half of
2009, has begun to slow.
Gross Profit of Pachinko Hall Operators per Pachinko and Pachislot Machine *
Yen
5,000
4,000
At the same time, the development efforts of manufacturers finally
produced pachislot machines that satisfied market demand while remaining within the scope of current regulations. Consequently, the utilization
3,000
2,000
rate of pachislot machines bottomed out, and unit sales per pachislot
machine increased. Moreover, a trend toward replacing pachinko machines with pachislot machines is providing a tailwind. Given theses
1,000
0
Jun.
Jul.
Aug.
prolonged downturn.
Sep.
Oct.
Nov.
2009
trends, the pachislot machine market is on the brink of emerging from its
━ Pachinko machines
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
2010
━ Pachislot machines
* Per day industry average
Source: Daikoku Denki Co., Ltd., DK-SIS data
I N F OR M AT IO N
The Market
Amusement-Related Market (amusement arcade machines, amusement center operations)
Changes in the Amusement Center Operations Market Due to
Amusement Center Numbers and Market Size
Sluggish Consumer Spending
800
12,000
600
9,000
400
6,000
200
3,000
Billions of yen
Centers
The amusement-related market comprises the amusement arcade machines
market, generating revenues of about ¥190 billion*, and the amusement
center operations market, accounting for roughly ¥570 billion* in revenues.
Capital investment trends among amusement center operators directly affect
the amusement arcade machines market.
From fiscal 2002 to fiscal 2006, the amusement center operations mar-
ket expanded continuously on the back of new types of gameplay, such as
0
02
kids’ card games, and stepped-up openings of family-oriented facilities in
shopping centers.
However, amusement center openings in shopping centers and success
in attracting families became increasingly linked to consumer-spending trends.
As a result, in fiscal 2007 the amusement center operations market began
03
04
05
06
07
08
0
FY
■ Revenues from amusement center operations (left)
━ Amusement center numbers (category 8 centers) (right)
Sources: JAMMA, AOU, NSA, Amusement Industry Survey 2008
Revenues from Amusement Centers in Shopping Centers
and Department Stores
Billions of yen
%
contracting due to curbed consumption amid uncertainty in financial markets
300
60
as well as the industry’s failure to supply enough machines and services cater-
250
50
200
40
150
30
100
20
50
10
ing to potential user needs. This contraction continued in fiscal 2008.
* Sources: JAMMA, AOU, NSA, Amusement Industry Survey 2008
Business Conditions Worsen Further Due to Sluggishness of
Existing Amusement Centers and Deterioration of Fund-Raising
Conditions
In the amusement center operations market, existing amusement center revenues have continued to edge down year on year since fiscal 2004. Before
this, the market as a whole had grown continuously. These tough business
0
02
03
04
05
06
07
08
0
FY
■ Revenues from amusement centers in shopping centers and department stores (left)
━ % of revenues from amusement center operations (right)
conditions arose because companies did not develop enough new user
groups. Exacerbating this overall market stagnation, amusement center operators face difficulties in raising funds for capital investment aimed at introducing
new products and invigorating amusement centers due to worsening condi-
Year-on-Year Comparison of Sales at Existing Amusement Centers
and Annual Revenues per Amusement Center
Thousands of yen
%
35,000
110
30,000
105
25,000
100
20,000
95
15,000
90
10,000
85
5,000
80
tions in financial markets.
The number of amusement centers has been in decline for many years.
Previously, this trend mainly stemmed from the withdrawal of small amusement center operators. In recent years, however, major amusement center
operators have begun closing unprofitable amusement centers.
Demand for Large, High-End Products Softens
Advancing in step with the amusement center operations market, the amusement arcade machine market grew for five consecutive years through fiscal
0
02
03
04
05
06
■ Annual revenues per amusement center (left)
━ Year-on-year comparison of sales at existing amusement centers (right)
07
08
0
FY
2006. The drivers of this growth included high-value-added products differentiated from home video game consoles, large medal games for large-scale
Amusement Arcade Machine Sales *
Billions of yen
250
amusement centers, and trading card games. However, the amusement arcade
machine market began decreasing year on year from fiscal 2007 onward following declining amusement center revenues. In fiscal 2008, the scale of Japan’s
200
150
amusement arcade machine market decreased a significant 11% year on year.
With revenues from amusement center operations having peaked, demand
contraction is particularly conspicuous for the large, high-end products that used
to drive the market. Further, revenues are declining because, rather than sales
of amusement arcade machines themselves, sales of comparatively inexpensive
software that upgrades amusement arcade machines are increasing. This lower
100
50
0
02
03
04
05
06
07
08
FY
* Total domestic sales and exports
demand for large, high-end amusement arcade machines with advanced functions clearly demonstrates amusement center operators’ diminished capacity to
undertake capital investment.
Collaboration between Amusement Center Operators and Machine
Manufacturers is Key to Reactivating the Market
Since fiscal 2009, economic conditions have been gradually improving.
However, business conditions for amusement center operators remain tough.
The recovery of the overall market depends on how far amusement center
operators and amusement arcade machine manufacturers are able to collaborate. They must embark upon joint efforts to attract potential users by offering
amusement arcade machines distinctive from home video game consoles or
by providing services that tie in with home video game consoles. Another focus
of collaborative efforts should be the introduction of systems that can reinvigorate amusement centers based on limited capital investment.
In fact, efforts to invigorate amusement centers are already underway. For
example, manufacturers are standardizing machine cabinets to enable amusement center operators to upgrade content flexibly as needed. Also, they are
reducing development and equipment costs by introducing high-performance
multipurpose computer graphics boards for amusement arcade machines.
Further, manufacturers and amusement center operators are establishing new
usage fees and rates. These include time charges that encourage a wider group
of users to play amusement arcade machines or the setting of content fees at
levels that facilitate the diversification of earnings sources. Other initiatives are
building new revenue-sharing business models in which amusement center
operators and manufacturers share the earnings from machine utilization.
I N F OR M AT IO N
The Market
Home Video Game Software Market
Growth Weakens in Home Video Game Software Market Worldwide
Until 2008, the home video game software market trended toward expansion,
which centered on North America and Europe. The spread of current-generation
Home Video Game Software−Market Size in Main Regions
Billions of yen
1,200
1,000
game platforms and the inclusion of families and other new users fueled this
growth. In 2009, however, the market suffered a slowdown worldwide. Japan’s
800
market shrunk 1.8%* year on year. As for the former growth drivers, the industry
600
saw year-on-year decreases in market size of 7.8%* in Europe and 9.1% in North
400
America. The main reason for this loss of momentum was the slump in consumer
200
spending from fall 2008, which affected the home video game software industry
0
02
despite its reputation for being recession-proof. In addition, other factors are affecting today’s home video game software market, including expansion of the market
━ Japan
03
━ Europe
04
05
06
07
08
09
CY
━ North America
Source: Famitsu Game White Paper 2010
for used products, an increase in customers purchasing downloads, and the emergence of free video games.
* Source: Famitsu Game White Paper 2010
Smartphone Penetration Worldwide
Millions of units
600
New Game Platforms Emerge
The advance of such new game platforms as smartphones and social network
500
services (SNS) is beginning to have a significant affect on market trends.
400
300
As smartphones spread rapidly, the application software market catering to
them is becoming increasingly important. With the marketing of tablet mobile
terminals in 2010, the application software market is set to grow even further.
200
100
Similarly, the expansion of the content market for large-membership SNS is
gathering speed.
In response to these shifting conditions, home video game software manu-
facturers are attempting to enter new markets and develop new products by taking
into consideration such aspects as user interfaces or operability, user groups, and
where games are played−a set of considerations completely different from the
requirements for existing game platforms.
Evolving Game Platforms Call for Technological Innovations
In 2009, the home video game software market for current-generation platforms
contracted year on year. Due to slumping consumer spending, this market continued to decelerate in 2010. On the other hand, 3D technology, new controllers, and
other technological innovations promise to reignite the home video game software
market. While new game platforms are attracting infrequent users mainly based on
“casual” game content, game content for current-generation platforms is catering to
the increasingly sophisticated needs of core video game fans. As the industry enters an uncharted competitive territory, only manufacturers that can painstakingly
design products and services to suit ever more diverse user needs will survive.
10
0
05
06
Sources: f-ism, Screen Digest
07
08
09
10
11
12
13
Estimated
Estimated
Estimated
Estimated
CY
Toy, Network Content, and Animation Markets
Toy Market−Marketing Targeting Broader Groups Intensifies
In fiscal 2009, Japan’s toy market, excluding home video game platforms
and software, declined 3.7% year on year, to ¥313.1 billion*, reflecting
increasingly conservative, thrifty consumer sentiment and falling birth rates.
Despite this decline, card games and other toys for boys and edutainment
toys posted robust sales.
Toys−Market Size in Japan
(excluding home video game software and platforms)
Billions of yen
%
400
105
300
100
200
95
100
90
In recent years, initiatives by manufacturers to expand the toy market
have typically involved developing and marketing products aimed at groups
other than children. For example, manufacturers have opened up new markets based on hobby toys that parents and children can enjoy and toys that
promote the well-being of senior citizens.
* Source: Yano Research Institute Ltd.
0
04
05
06
07
08
09
0
Estimated
FY
■ Size of Japan’s toy market (left) ━ Year on year (right)
* Shipment basis
Network Content Market−New Earnings Models Take Shape
In Japan, there were more than 110 million mobile phone subscriptions as
Content for Mobile Phones−Market Size* in Japan
Billions of yen
of March 31, 2010. Of these, 96.4%* were for mobile phones with Internet
700
connectivity. Recently, mobile Internet users have increased and content has
600
become more varied and rich due to networks with wider bandwidths and
500
higher speeds and the popularization of flat-rate plans.
400
300
The market for online games for PCs continues to grow centered on role-
playing games with numerous participants. In particular, recent years have
200
seen a surge in the momentum of this growth with the emergence of Inter-
100
net games users can play casually via Internet browsers and social games
linked with SNS. In conjunction with these trends, new business models are
emerging such as charging by item or pay-per-use systems.
0
04
05
06
07
08
09
Source: Digital Content White Paper 2010
CY
* Estimated market size
* Ministry of Internal Affairs and Communications
Visual Content−Market Size * in Japan
Animation Market−Computer-Graphics (CG) and 3D Animation
Emerge as New Markets
After peaking in 2006, the number of animation series broadcast on television decreased. Very recently, this downward trend has begun to flatten
Billions of yen
700
600
500
400
out. Diversified broadcasting, in terms of TV stations, broadcast days, and
broadcast times, has become established and caters to the preferences of a
range of different viewers. There has been a pronounced trend toward some
animation works that were originally in video format becoming hits after
showing at movie theaters. Other animation works are seeing steady sales
growth due to demand for high-quality products from core fans. Further, the
300
200
100
0
04
05
06
07
08
09
CY
* Estimated market size
evolution of technologies for CGI animation as well as 3D-compatible animation are attracting interest as keys to fresh growth in the animation market.
11
I N F OR M AT IO N
Market Data
The Market
Number of Pachinko Halls
Number of halls
2005
2006
2007
2008
2009
Number of pachinko halls with pachinko machines installed
13,163
12,588
12,039
11,800
11,722
Number of pachinko halls with pachislot machines installed
2,002
2,086
1,546
1,137
930
15,165
14,674
13,585
12,937
12,652
CY
Total
Source: National Police Agency. Number of pachinko halls with pachinko machines installed includes halls that combine installations of pachinko machines, pachislot machines, arrange-ball machines, and other machines.
Pachislot Machine and Pachinko Machine Sales, Installed, and Market Scale
2005
2006
2007
2008
2009
Machine sales (units)
1,786,292
1,647,759
1,744,308
913,053
765,924
Machines installed (units)
1,936,470
2,003,482
1,635,860
1,448,773
1,347,176
536,539
490,959
502,501
247,860
225,860
CY/FY*
Pachislot machines
Market scale (millions of yen)
Pachinko machines
Machine sales (units)
4,047,999
3,837,960
3,173,725
3,349,146
3,332,984
Machines installed (units)
2,960,939
2,932,952
2,954,386
3,076,421
3,158,799
869,940
898,646
868,623
918,514
978,937
Market scale (millions of yen)
Sources: National Police Agency (machines installed) and Yano Research Institute Ltd. (machine sales and market scale)
* Number of installed machines is on a calendar year basis. Number of machine sales and market scale information is on a fiscal year basis (settlement dates from July to June).
Share of Annual Pachislot Machine Sales
FY*
2005
Rank
Manufacturer
2006
Share
Manufacturer
2007
Share
Manufacturer
2008
Share
Manufacturer
2009
Share
Manufacturer
Share
1
Sammy
34.0%
Sammy
31.8%
Sammy
21.8%
Company Y
18.8%
Sammy
21.3%
2
Company D
13.2%
Company D
12.1%
Company U
11.0%
Company S
14.6%
Company S
13.6%
3
Company H
10.5%
Company H
10.9%
Company S
9.7%
Sammy
13.5%
Company U
13.1%
4
Company Y
8.4%
Company Y
10.5%
Company D
8.7%
Company H
7.4%
Company Y
9.5%
5
Company S
6.3%
Company K
9.4%
Company Y
8.7%
Company K
6.5%
Company K
7.8%
* Settlement dates from July to June
Share of Annual Pachinko Machine Sales
FY*
2005
Rank
Manufacturer
1
Company S
24.7%
Company S
23.1%
Company S
25.8%
Company S
24.2%
Company S
2
Company S
18.3%
Company K
21.0%
Company S
22.9%
Company S
13.5%
Company S
17.2%
3
Company K
9.6%
Company S
16.7%
Company K
16.1%
Sammy
11.7%
Company K
12.8%
4
Company N
7.9%
Company N
6.6%
Company N
6.4%
Company K
10.5%
Company N
11.9%
5
Sammy
7.1%
Company D
5.1%
Company D
5.3%
Company N
10.4%
Sammy
10.8%
Sammy
3.5%
Sammy
3.4%
12
2006
Share
Manufacturer
2007
Share
Manufacturer
2008
Share
Manufacturer
2009
Share
Manufacturer
Share
18.0%
Amusement Machine and Amusement Center Operations Markets
2004
2005
2006
2007
2008
Net sales of amusement machines (millions of yen)
180,550
199,227
223,357
219,061
196,164
Net sales from amusement center operations (millions of yen)
649,223
682,458
702,857
678,099
573,104
10,109
9,515
9,091
8,652
8,137
96.0
98.7
97.8
92.2
97.8
2005
2006
2007
2008
2009
FY
Number of amusement centers
Year-on-year comparison of sales at existing amusement
centers (%)
Source: JAMMA, AOU, NSA, Amusement Industry Survey 2008.
Home Video Game Software—Market Size in Main Regions
CY
2004
Billions of yen
Japan
316.3
290.8
363.9
360.5
332.1
326.2
Europe
477.7
546.7
604.0
888.3
948.5
874.5
North America
667.6
711.7
750.4
991.9
1,179.3
1,071.2
CY
2004
2005
2006
2007
2008
2009
Mobile phone content
278.3
343.8
405.6
489.3
574.8
655.6
Source: Famitsu Game White Paper 2010
Mobile Phone Content Market Scale*
Billions of yen
Visual content
1.1
1.4
2.4
3.6
6.2
11.2
Music content
137.4
162.3
163.1
172.0
177.3
171.8
Game content
41.2
58.9
74.8
84.8
86.9
88.4
Text content
98.6
121.2
165.3
228.9
304.4
384.2
* Estimated market data
Domestic Toy Market Scale (Excluding Home Video Game Consoles and Software)
Billions of yen
2004
2005
2006
2007
2008
2009
Domestic shipments
322.5
323.0
318.7
324.7
325.3
313.2
Domestic retail sales
510.8
510.5
504.3
512.8
516.1
493.3
2004
2005
2006
2007
2008
2009
450.6
558.3
584.3
623.8
630.7
557.2
17.3
29.2
36.8
44.4
51.3
55.3
FY*
Domestic Visual Content Market Scale*
CY
Packaged visual content
Network visual content
Billions of yen
* Estimated market data
13
|| DETERMINATION ||
Annual Report 2010
SEGA SAMMY HOLDINGS
DE T ER M I N AT IO N
Contents
10 Consolidated Financial Highlights
12 Discussion with Management
24 Feature: Exploiting Intellectual Properties to the Utmost
28 Bird’s Eye View
28 SEGA SAMMY Group in the Entertainment Industry
29 Mainstay Businesses−Size of Related Markets and Our Position
30 Overview by Business Segment
30 Pachinko and Pachislot Machine Business
33 Amusement Machine Sales Business
35 Amusement Center Operations
36 Consumer Business
40 Corporate Governance
40 Directors, Corporate Auditors, and Executive Officers
42 Corporate Governance System
46 Corporate Social Responsibility
49 Financial Section
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
Statements in this annual report regarding the plans, estimates, beliefs, management strategies, perceptions, and other aspects of SEGA SAMMY HOLDINGS INC. (“the Company”)
and its SEGA SAMMY Group Companies (“the Group”), including SEGA CORPORATION and Sammy Corporation, are forward-looking statements based on the information currently
available to the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,”
“forecast,” “estimate,” “project,” “anticipate,” “aim,” “may,” and “might,” and words of similar meaning in connection with a discussion of future operations, financial performance,
events, or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on
management’s assumptions and beliefs in light of the information currently available to management.
The Company cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking
statements, and therefore you should not place undue reliance on them. You also should not assume that the Company has any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise. The Company disclaims any such obligation.
Actual results may vary significantly from the Company’s forecasts due to various factors. Factors that could influence actual results include, but are not limited to, economic
conditions, especially trends in consumer spending, as well as currency exchange rate fluctuations, changes in laws and government systems, pressure from competitors’ pricing and
product strategies, declines in the marketability of the Group’s existing and new products, disruptions to production, violations of the Group’s intellectual property rights, rapid advances
in technology, and unfavorable verdicts in major litigation.
[This annual report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.]
3rd Century BC
built with
|| DETERMINATION ||
Total length 8,800 km. Around 2,200 years ago, unwavering determination over a long period
created the only man-made structure on Earth that can be seen from space by the naked eye.
15th Century
invented with
|| DETERMINATION ||
Invented in the 15th century, typographical printing became a keystone of mankind’s intellectual development.
It was an achievement resulting from Gutenberg’s firm resolve to advance printing technology.
20th Century
reached with
|| DETERMINATION ||
In 1969, man ventured where no one had gone before.
Without intelligence and strong commitment, the historic feat of landing men
on the moon and bringing them back safely would not have been possible.
Today, they still inspire us.
Accomplishing
Structural Reforms
||
||
||
||
+ 339.0%
As reforms to date began bearing fruit, we posted a 339.0%, or ¥28.3 billion, year-on-
+ 39,000 units
For the first time in five fiscal years, unit sales of pachislot machines grew thanks to
year increase in operating income, to ¥36.7 billion, for fiscal 2010.
contributions from such titles as Pachislot Psalms of Planets Eureka Seven, which
shipped 56,000 units.
69.1%
p. 12–17
p. 30–32
In fiscal 2010, the pachinko machine business’ new development system not only
produced a steady stream of hit titles but also dramatically improved profitability by
reusing parts and increasing pachinko board sales to account for 69.1% of pachinko
machine business unit sales.
Reactivating
the market
p. 18–20
Launched based on the ALL.Net P-ras revenue-sharing business model−which
improves investment efficiency for amusement center operators while securing stable
long-term revenues for the Group−the amusement arcade machine BORDER BREAK
earned a high level of utilization.
p. 33–34
Closed or sold 66
amusement centers
Aiming to improve earnings, we closed or sold 66 amusement centers in Japan that
Into the black for the
first time in 3 years
The home video game software business enhanced its profitability by narrowing down
Cross-media
strategy
Establishing Bakugan Limited Liability Partnership (Bakugan LLP) marked the beginning
had inadequate profitability or potential.
p. 35
the number of titles in Japan. As a result, the Consumer Business segment achieved
profitability for the first time in three years.
p. 21–23
of full-fledged efforts to maximize the value of BAKUGAN as an intellectual property in
Japan by rolling it out across a range of media.
p. 24–27
Consolidated Financial Highlights
SEGA SAMMY HOLDINGS INC. and Consolidated Subsidiaries
Years Ended March 31
Thousands of
U.S. dollars1
Millions of yen, unless stated otherwise
2006
Net sales
Pachinko and Pachislot Machine Business 2
Amusement Machine Sales Business 2
2007
2008
2009
2010
2010
¥553,241
¥528,238
¥458,977
¥429,195
¥384,679
$4,134,116
265,632
211,540
145,583
161,691
160,376
1,723,552
71,513
75,455
71,062
61,926
45,117
484,875
106,246
103,850
91,227
71,310
54,788
588,808
Consumer Business 2
90,353
119,593
141,791
131,361
121,575
1,306,561
Others 2
19,497
17,800
9,314
2,904
2,821
30,318
2
Gross profit
229,012
203,079
120,403
119,092
138,867
1,492,397
Selling, general and administrative expenses
109,868
126,549
126,232
110,728
102,154
1,097,846
Operating income (loss)
119,144
76,530
(5,829)
8,363
36,712
394,550
Pachinko and Pachislot Machine Business
99,848
71,102
8,444
14,528
29,502
317,059
Amusement Machine Sales Business
12,177
11,683
7,152
6,890
7,094
76,242
(1,338)
(14,384)
6,332
68,053
9,244
132
(9,807)
(7,520)
Consumer Business
1,977
1,749
(5,989)
(941)
Others
(1,713)
(1,345)
(75)
Corporate and eliminations
(2,389)
(6,791)
(5,554)
(4,947)
353
(5,213)
336
(56,031)
3,611
140,999
104,578
39,782
35,007
53,887
579,134
Net income (loss)
66,222
43,456
(52,471)
(22,882)
20,269
217,832
Capital expenditures
37,650
59,272
50,422
26,610
16,164
173,716
Depreciation and amortization
21,855
28,048
45,611
26,644
17,175
184,584
R&D expenses, content production expenses
36,338
52,107
65,385
59,676
41,502
446,018
Net cash provided by (used in) operating activities
83,228
60,623
(25,879)
32,199
54,998
591,062
Net cash provided by (used in) investing activities
(54,706)
(75,395)
(10,399)
(7,640)
(82,108)
Net cash used in financing activities
(21,153)
(1,713)
(7,580)
(3,401)
(36,550)
EBITDA 3
33,135
47,358
508,954
Total assets
522,914
549,940
469,643
423,938
423,161
4,547,680
Total net assets / shareholders’ equity 5
316,680
358,858
281,628
242,532
256,770
2,759,492
Number of shares outstanding (shares)
283,229,476
283,229,476
283,229,476
283,229,476
283,229,476
Free cash flows
28,522
4
(14,772)
936
(7,653)
(36,278)
Operating Income (Loss)/
Operating Margin
Net Sales
Gross Profit/Gross Profit Margin
SG&A Expenses/SG&A Ratio
Billions of yen
Billions of yen
%
Billions of yen
%
Billions of yen
%
600
200
40
200
40
40
20
150
30
150
30
30
15
20
10
100
20
100
20
10
5
50
10
50
10
0
0
0
FY
0
500
400
300
200
100
0
08
09
10
0
FY
08
09
■ Gross profit (left)
Gross profit margin (right)
10
10
08
09
■ SG&A expenses (left)
SG&A ratio (right)
10
0
FY
–10
08
09
■ Operating income (loss) (left)
Operating margin (right)
10
–5
FY
Yen
2006
2007
¥ 261.06
¥ 172.47
260.35
172.35
−
1,254.14
1,341.80
80.00
60.00
Per share data
Net income (loss)
Diluted net income
Total net assets / shareholders’ equity
5
U.S. dollars1
Cash dividends
2008
2009
2010
2010
¥ 80.46
$ 0.86
−
−
−
1,030.09
882.47
937.80
10.07
45.00
30.00
30.00
0.32
¥ (208.26)
¥ (90.83)
%
2006
Key ratios
2007
2008
2009
2010
Gross profit margin
41.4
38.4
26.2
27.7
36.1
SG&A ratio
19.9
24.0
27.5
25.8
26.6
Operating margin
21.5
14.5
–1.3
1.9
9.5
6.6
9.9
14.2
13.9
10.8
23.0
13.3
–17.6
–9.5
8.8
R&D expenses to net sales
ROE
24.8
15.2
–1.6
1.5
8.5
60.6
61.5
55.3
52.4
55.8
2006
2007
2008
2009
2010
Pachislot machines unit sales
607,106
523,422
380,688
123,286
162,932
Pachinko machines unit sales
288,895
132,981
108,184
391,831
360,171
462
449
363
322
260
SEGA’s existing domestic amusement center sales
year on year (%)
103.3
95.8
89.0
92.4
91.7
Home video game software unit sales (thousands)
16,400
21,270
26,990
29,470
26,750
ROA
6
Total net assets ratio
Main segment benchmarks
Number of domestic amusement centers
1
2
3
4
5
Yen amounts have been translated into U.S. dollars solely for convenience at the rate of ¥93.05 to U.S. $1, the prevailing exchange rate at March 31, 2010.
Net sales to outside customers
EBITDA = Operating income (loss) + Depreciation and amortization
Free cash flows = Net cash provided by (used in) operating activities + Net cash provided by (used in) investing activities
Following the enactment of the new Japanese Corporate Law in 2006, the Company presents total net assets for the fiscal years ended March 31, 2007 and 2008, which represent the shareholders’ equity figure used in previous years plus minority interests and share subscription rights.
6 ROA = Ordinary income ÷ Total assets Total Assets/Total Net Assets
(Shareholders’ Equity)
Capital Expenditures/
Depreciation and Amortization
Free Cash Flows
Net Income (Loss) per Share/
Cash Dividends per Share
Billions of yen
Billions of yen
Billions of yen
Yen
60
200
600
60
500
50
400
40
300
30
40
100
20
0
0
200
20
100
10
0
08
09
10
0
FYE
–100
–20
08
09
10
–40
FY
08
09
10
–300
FY
08
09
■ Total assets
■ Capital expenditures
■ Net income (loss) per share
■ Total net assets (Shareholders’ equity)
■ Depreciation and amortization
■ Cash dividends per share
10
FY
11
Okitane Usui
President, Representative Director,
and Chief Operating Officer,
SEGA CORPORATION
Hajime Satomi
Chairman of the Board and
Chief Executive Officer,
SEGA SAMMY HOLDINGS INC.
Keishi Nakayama
President, Representative Director,
and Chief Operating Officer,
Sammy Corporation
Determined to improve earnings even further and continue building corporate value,
the SEGA SAMMY Group will carry through decisive business management reforms and
steer toward resurgence.
12
Overview of Fiscal 2010 Business Results
In fiscal 2010, ended March 31, 2010, although net sales declined 10.4% year on year, to ¥384.6
Business restructuring that reflected
billion, operating income increased a sharp 339.0%, to ¥36.7 billion. The operating income margin
changing business conditions and built
improved 7.6 percentage points, to 9.5%. The following summarizes the main factors that led to
an unshakable earnings platform enabled
these business results.
our business results for fiscal 2010.
Lower net sales were principally due to a 27.1% decrease in net sales from the Amusement
In the following pages, the senior
Machine Sales Business segment, which resulted from the absence of the previous fiscal year’s
management team discusses the SEGA
major title launches and a 23.2% year-on-year decrease in net sales from the Amusement Center
SAMMY Group’s reforms to date, out-
Operations segment because there were fewer amusement centers.
standing tasks, and strategic direction
going forward. Hajime Satomi, Chairman
Meanwhile, by improving their profitability, all business segments contributed to the significant
increase in earnings. The biggest contributor to earnings was the Pachinko and Pachislot Machine
of the Board and Chief Executive Officer,
Business segment. Thanks to successful measures to improve profitability, such as increasing high-
offers a Groupwide perspective. Insights
margin pachinko board sales as a percentage of pachinko machine unit sales, the Pachinko and Pa-
into the Group’s main business areas
chislot Machine Business segment saw operating income rise 103.1%, to ¥29.5 billion. Also, the
are provided by the presidents of core
Consumer Business segment contributed to business results by achieving operating income of ¥6.3
operating companies: Keishi Nakayama,
billion through efforts to narrow down the number of titles and thereby heighten the efficiency of
President, Representative Director, and
its home video game software development. In addition, the Amusement Center Operations seg-
Chief Operating Officer of Sammy
ment reduced operating loss considerably, from ¥7.5 billion for the previous fiscal year to ¥1.3 bil-
Corporation and Okitane Usui, President,
lion, by curbing cost of sales and operating expenses through the closure or sale of amusement
Representative Director, and Chief
centers with inadequate profitability or potential. And, the Amusement Machine Sales Business seg-
Operating Officer of SEGA CORPORATION.
ment performed solidly as the titles that it marketed continued enjoying high utilization rates based
on a revenue-sharing business model.
Net other expenses shrank significantly, from ¥28.3 billion for the previous fiscal year to ¥9.6
billion. As a result, for fiscal 2010 the Group achieved net income of ¥20.2 billion, compared with
net loss of ¥22.8 billion for the previous fiscal year.
Main Contributors to Higher Operating Income
■ Pachinko and Pachislot
Machine Business
Billions of yen
• Higher pachislot unit sales
• Lower parts procurement costs
• Increase in pachinko board sales as a percentage of pachinko machine unit sales
+7.2 36.7
• Reduction of cost of sales and operating expenses due to withdrawal from
the pachinko and pachislot machine peripheral business
• Revision of pricing strategy
■ Amusement Machine
Sales Business
+6.1
• Increase in revenue from revenue-sharing business model
+0.2
• Brisk sales of CVT kits *
+14.9
• Reduction of R&D expenses/content production expenses
• Revision of amusement center portfolio
• Improvement in development efficiency through narrowing down of
• Reduction of depreciation and other operating expenses
the number of titles in Japan
* Kits for upgrading boards, software, and exteriors
8.3
+¥28.4 billion
09
10
FY
13
Heading toward Resurgence
Reforms to Date
Q.
A.
What
prompted your business restructuring of the
past two years?
card games, which contribute significantly to earnings, had reached the
Satomi We have reformed mainly because business
conditions have changed dramatically.
at existing amusement centers were sluggish. Moreover, the Consumer
end of a cycle. Also, in the Amusement Center Operations segment sales
Business segment saw lackluster sales of game software in Japan.
In fiscal 2005−the first fiscal year after the management integration of
SEGA CORPORATION and Sammy Corporation−and fiscal 2006, the
spending accompanying the worldwide recession from fall 2008 became
lion due to favorable sales of pachislot machines by the Pachinko and
a headwind for the Group. Confronted with business conditions that were
Pachislot Machine Business segment and the explosive popularity of the
tougher in all respects, we stepped up reform.
Amusement Center Operations segment’s kids’ card games. From fiscal
* Rules that stipulate the approval process that must be followed by machine manufacturers from
development to sales
2007, however, our profitability began to change.
This change was triggered by the revision of regulations pertaining to
the Entertainment Establishments Control Law * (2004 regulatory revision),
which affected the Pachinko and Pachislot Machine Business segment.
In the pachinko and pachislot machine market, the 2004 regulatory revi-
Q.
A.
Could you summarize your business restructuring
efforts so far?
Satomi We have decisively strengthened competitiveness
and revised cost structure throughout the Group.
sion resulted in decreases in pachislot machine installations and unit
sales. This significantly affected the business results of the segment, one
The Group’s businesses cover a range of entertainment areas. Therefore,
of the Group’s earnings mainstays. On the other hand, the 2004 regula-
we reformed businesses based on the changes in market conditions
tory revision liberalized the development of pachinko machines, invigorat-
they faced.
ing the pachinko machine market. However, the Group did not fully
benefit from this upturn because it had been unable to establish suffi-
strategy had two main thrusts. First, we took offensive measures to
cient brand power in the market.
claim a larger share of the pachinko and pachislot machine market by
Billions of yen
600
In the Pachinko and Pachislot Machine Business segment, our
Main Business Restructuring
Reforms to Date
Billions of yen
Revision of regulations pertaining to
the Entertainment Establishments Control Law
(July 2004)
200
Time limit of interim measures for revision of
regulations pertaining to the Entertainment
Establishments Control Law (Fall 2007)
■ Pachinko and
Pachislot Machine
Business
• Strengthened pachinko machine business
(transferred to new development system/increased pachinko
board sales as a percentage of pachinko machine unit sales)
• Withdrew from the pachinko and pachislot machine peripheral business
• Reduced cost by reusing parts
• Improved profit margin by revising pricing strategy
■ Amusement
Machine Sales
Business
• Stopped developing certain large, high-end machines
• Reduced R&D expenses/content production expenses
• Introduced new business model (revenue-sharing business model)
■ Amusement Center
Operations
• Closed or sold amusement centers with inadequate profitability
or potential
• Narrowed down number of titles under development
• Reduced R&D expenses/content production expenses
■ Other Reforms
• Rightsized workforce by introducing voluntary early retirement plan
(SEGA/SEGA TOYS CO., LTD.)
• Implemented measures in earnest to create Group synergies
(established Bakugan Limited Liability Partnership and SEGA
SAMMY VISUAL ENTERTAINMENT INC.* )
150
450
Reform of earnings structure
300
100
50
150
0
0
–50
05
■ Net sales (left)
14
To address these problems, from May 2008 the Group began revising
its overall business structure. Furthermore, the reduction in consumer
SEGA SAMMY Group recorded operating income of more than ¥100 bil-
During the same period, improving the profitability of SEGA emerged
as a task. The operating company faced problems. The popularity of kids’
06
07
Operating income (loss) (right)
08
09
Net income (loss) (right)
10
–100
FY
* Currently MARZA ANIMATION PLANET INC.
strengthening development capabilities. Second, we strengthened profitabil-
the segment closed an overseas development studio. The Amusement
ity. Our strengthening of development capabilities focused on growing our
Machine Sales Business segment stopped developing certain large, high-
share of the pachinko market. This was because, compared with the pachis-
end machines for which demand had been declining. These initiatives
lot machine market, the pachinko machine market is larger and offers the
sought to ensure return on R&D expenses and investment.
Group a huge amount of leeway to extend market share. Our main initiative
involved building a market-oriented development system. This produced
For example, we introduced a voluntary early retirement plan at a listed sub-
benefits. The utilization and outside evaluation of our pachinko machines
sidiary and withdrew from unprofitable businesses by closing a subsidiary.
rose considerably, and our share of machine installments grew. Also,
Q.
A.
heightening the appeal of products helped increase high-margin pachinko
board sales as a percentage of pachinko machine unit sales, significantly
improving the segment’s profitability.
Measures to strengthen profitability included reusing parts and reduc-
Other initiatives revised cost structure from a Groupwide perspective.
How do you view the fiscal 2010 business results?
Satomi Although we increased earnings substantially,
I am by no means complacent about our current standing.
ing cost by curbing parts procurement costs. Also, we withdrew from the
I think we were able to show the benefits of reforms to date. In fiscal
pachinko and pachislot machine peripheral business, which was unprofit-
2010, all business segments improved earnings year on year, and consoli-
able, and concentrated management resources on our main businesses.
dated earnings rose significantly. However, this does not mean that I am
satisfied with our present performance. Firstly, if we compare fiscal 2010
In the Amusement Machine Sales Business segment, the Amusement
Center Operations segment, and the Consumer Business segment, the
business results with those of fiscal 2005 and 2006, when we posted
main theme was streamlining cost to match the scale of earnings. In the
operating income above ¥100 billion, there is room to grow earnings and
Amusement Center Operations segment, we continued closing or selling
improve profit margins. Secondly, the recovery in earnings for fiscal 2010
amusement centers with inadequate profitability or potential. Also, we re-
was due to revision of cost structure. In order to grow earnings continuous-
duced cost of sales and operating expenses, focusing on personnel ex-
ly, in addition to cost reduction efforts, we need to place net sales back on
penses. The Consumer Business segment scrutinized return on
a growth track. To date, we have completed 80% of our business restruc-
investment in the home video game software business and concentrated
turing. In fiscal 2011, I want to complete this restructuring while setting a
development and marketing only on titles promising high returns. Further,
course for net sales growth.
Strengthened Pachinko Machine Business
Pachinko and pachislot machine unit sales
Reduced Expenses Rigorously
Capital investment/Depreciation/R&D and content production expenses
Thousands of units
Billions of yen
800
80
Time limit of interim measures for revision of
regulations pertaining to the Entertainment Establishments
Control Law (Fall 2007)
600
60
400
40
200
20
0
05
06
■ Pachislot machines ■ Pachinko machines
07
08
09
10
0
FY
05
■ Capital investment 06
07
08
09
10
FY
Depreciation ■ R&D and content production expenses
15
Strategies Going Forward
Q.
A.
What are your targets and priority measures for fiscal
2011?
strengthening operational management capabilities. Also, the Consumer
Business segment’s home video game software business will focus on
reducing overseas titles. At the same time, the segment will cater to such
Satomi We are steering toward a resurgence in business
new markets as content for social networking services and smartphones.
results.
In addition, plans call for building systems that enable the mutual use
In fiscal 2011, the SEGA SAMMY Group is setting course for a resurgence
of management resources within the Group and further strengthen its
in business results. We are targeting year-on-year increases of 4.0% in net
competitiveness as a comprehensive entertainment company.
sales, to ¥400 billion, and 9.0% in operating income, to ¥40.0 billion.
Fiscal 2011 Targets *
The driver of this growth will be the Pachinko and Pachislot Machine
Billions of yen
2010
Business segment, which will likely see net sales rise 25% and earnings
Net sales
384.6
400.0
4.0%
increase more than 18% from fiscal 2010 levels. Market conditions are
Pachinko and Pachislot Business
160.3
200.0
24.8%
challenging. However, in the pachinko machine business we aim to erode
45.1
53.0
17.5%
54.7
44.0
–19.6%
the market shares of the leading companies. As for the pachislot machine
business, our focus is on building a dominant market share. Further, we
intend to increase the revenue and earnings of the entire segment synergistically by strengthening coordination among Group companies through
standardization of parts and development collaboration. In the Amuse-
Consumer Business
2011 YOY change
121.5
100.0
–17.7%
Operating income
36.7
40.0
9.0%
Pachinko and Pachislot Business
29.5
35.0
18.6%
7.0
5.5
–21.4%
(1.3)
(1.5)
Consumer Business
6.3
7.0
by promoting the spread of revenue-sharing while developing overseas
Corporate and eliminations
(5.2)
(6.0)
business in earnest. Plans call for developing an operational platform from
Net income
20.2
22.0
which to target Asia’s markets, with a particular focus on China. Regarding
* Numerical targets for fiscal 2011 are based on information available when figures were announced (May
14, 2010) and the judgment of business managers. Please be aware that these targets are subject to
risks and uncertainties and that actual future business results could differ significantly from these targets
due to a variety of factors. Further, the Company undertakes timely disclosures to stock exchanges of the
latest information, which it also releases on the IR page of its web site (URL http://www.segasammy.
co.jp/english/ir/).
the Amusement Center Operations segment, we want to improve profitability by continuing to revise our portfolio of amusement centers and
Fiscal 2011 Operating Income—Main Positive and Negative Factors
Billions of yen
■ Pachinko and Pachislot
Machine Business
■ Amusement Machine
Sales Business
• Increase in pachinko and pachislot machine unit sales
+5.5
• Reduction of parts procurement costs
+0.7
–1.5
–0.2
• Increase in R&D expenses/content production expenses
40.0
• Increase in overhead costs
• Decrease in number of existing amusement centers in Japan
• Closure of overseas development subsidiary, reduction of cost
of sales and operating expenses
36.7
• Improvement in profitability of listed subsidiaries
+¥3.3 billion
10
11
(Plan)
16
—
ment Machine Sales Business segment, we will invigorate Japan’s market
FY
11.1%
—
8.9%
Q.
A.
What specific measures are you taking to create Group synergies?
Satomi We are moving forward with a project tasked with
Q.
A.
What is your approach to cash dividends and capital policy?
Satomi Our policy is to pay cash dividends that reflect
earnings appropriately while investing retained earnings maximizing the value of character intellectual properties.
in growth business areas.
In November 2009, we established Bakugan Limited Liability Partnership
(Bakugan LLP) through a joint capital investment by SEGA TOYS CO.,
For fiscal 2010, the Group paid full-year cash dividends of ¥30.00 per
LTD., TMS ENTERTAINMENT, LTD., SEGA CORPORATION, Sammy
share, comprising interim cash dividends and year-end cash dividends of
Corporation, and Sammy NetWorks Co., Ltd. SEGA TOYS and Canadian
¥15.00 per share. As a result, the consolidated dividend payout ratio was
toy manufacturer Spin Master Ltd. developed the character toy BAKUGAN.
37.3%. For fiscal 2011, we plan to pay interim cash dividends of ¥20.00
Animation based on BAKUGAN is broadcast, and related products are
per share and year-end cash dividends of ¥20.00 per share. This will give
marketed, in 120 countries. Bakugan LLP aims to maximize the value of
full-year cash dividends of ¥40.00 per share, up ¥10.00 from fiscal 2010.
BAKUGAN as an intellectual property by marketing products across
We expect the consolidated dividend payout ratio to increase to 45.8%.
a range of media. In Japan, the new company controls overall production
Going forward, we intend to continue viewing returns to shareholders as
and merchandising, animation, toys, kids’ card games, content for PCs
our most important business management task and paying cash divi-
and mobile phones, and licensed products. Also, Bakugan LLP will
dends that reflect earnings appropriately.
heighten awareness throughout the Group of the importance of concert-
ed efforts that create synergies. This is why Sammy, despite not being
we will give greater importance to strategic investment as an option for
directly related to BAKUGAN, has a stake in Bakugan LLP. We hope this
strengthening existing business areas and accelerating the development
project will initiate the spread of structures for multifaceted value creation
of new businesses. Our policy is to use retained earnings effectively for
throughout the Group.
strategic investment by carefully selecting targets.
Meanwhile, steering toward resurgence from the current fiscal year,
For further details, please see the feature “Exploiting Intellectual
Properties to the Utmost” on pages 24 to 27.
Aiming to Maximize Intellectual Property Value through Concerted
Multimedia Roll-outs by the Group
Full-Year Cash Dividends
Consolidated dividend payout ratio
34.8%
*
—
*
—
37.3%
07
08
09
10
45.8%
Yen
Stake: 6%
Bakugan LLP
Stake: 50%
Toys/Goods
60
40
Stake: 3%
PCs/Mobile
phone content
20
Stake: 25%
Animation
Stake: 16%
Kids’ card games
0
11
FY
(Plan)
■ Full-year cash dividends per share
* Not applicable because recorded net loss for the fiscal years
17
Making Sammy a Consistent Winner
Q.
Why did you transfer to a new development system in the
Pachinko and Pachislot Machine Business segment, and
what have the benefits been?
A.
Product Strategy Committees lead the new development system. Aiming
to develop and market surefire hit products, the system incorporates strict
quality control standards as well as outside opinions and assessments.
During the two years since the system’s introduction, Sammy’s develop-
Nakayama The new system has improved average utilization rates substantially.
When I became Sammy’s president in May 2008, I made it my mission to
ment capabilities have improved markedly. Significantly higher utilization
rates compared with previous levels are proof of this improvement.
* The rates at which pachinko machines or pachislot machines are utilized (played) by customers
problems and focused on initiatives to overcome them. Our first initiative
Q.
A.
was to transfer to a new development system that would steadily provide
In the past two fiscal years, we have strengthened profitability rigorously.
hit titles and increase market share.
As well as curbing costs, mainly by reducing procurement costs for LCD-
related parts, we have promoted the reuse of parts and lowered the num-
build an organization that can generate earnings steadily no matter how
business conditions change. In my first fiscal year, we identified Sammy’s
The reputation and brand power of pachinko and pachislot machines
Sammy also seems to be targeting better profitability.
Nakayama We took steps to build a leader profit structure.
correlates closely to utilization rates * in pachinko halls. Pachinko and
ber of variety of parts used. Further, improving marketing divisions’
pachislot machines with high utilization rates, which represent player
communication with pachinko halls has enabled us to gauge demand
endorsement, contribute to the cash flows of pachinko halls. Therefore,
accurately before launching new machines. Consequently, our ordering of
we adopted utilization rates as an important indicator because they have
parts has become more precise, and our disposal of parts has fallen.
a major effect on pachinko and pachislot machine unit sales. Against this
backdrop, we strengthened collaboration among development divisions,
pachinko and pachislot machines has become possible under the new
production divisions, and marketing divisions, which are our points of
development system, we have revised pricing strategies for mainstay titles.
contact with players and pachinko halls. This involved shifting to a new
The pachinko machine business’ products have garnered a strong reputa-
development system that better reflects market perspectives in develop-
tion, which has extended the Group’s market share. In step with this
ment processes. Comprising key personnel from the three divisions,
growth, sales of high-margin replacement-use pachinko boards* rose
New System for Developing Surefire Hits
Utilization Rates Increased Steadily *
Because the steady development and marketing of differentiated
%
250
Product Strategy Committees
Comprising key personnel from development,
production, and marketing divisions
200
GATE 1
150
GATE 2
Marketing
Production
Development
GATE 3
Strict quality
checks
at each gate
After sales launches,
sales results, utilization data,
and market evaluations are
analyzed and reported to
the Product Strategy Committees
100
GATE 4
50
Approval/sales
0
Overall Evaluation
1
2
3
4
Before the transition（2007/3–2008/5）
5
Average for all manufacturers（2009–2010）
18
6
7
8
9
10
11
12 Week
After the transition（2008/9–2010/7）
* Utilization rate = Utilization of the Group’s pachinko and pachislot machines ÷ Average utilization of all
manufacturers
from 10.5% of segment unit sales for fiscal 2009 to 69.1% for fiscal
raised the operating income margin to 18.4%. However, measures to
2010. Higher sales of these products mitigates pachinko halls’ capital
improve earnings by reducing costs, revising pricing strategies, and
investment while improving our profit margin.
reusing parts are approaching limits and will not be enough to improve
earnings. Therefore, maintaining the solid foundation that we have built,
Thanks to this range of measures, the operating income margin of
the Pachinko and Pachislot Machine Business segment rose from 9.0%
we have to increase our top-line. With this in mind, in fiscal 2011 the
for fiscal 2009 to 18.4% for fiscal 2010.
pachinko machine business and the pachislot machine business will
* A vertically positioned board that includes numerous pins and tulip-shaped devices, LCDs, and
gameplay control boards
make a significant strategic shift toward staking out larger market shares.
Offensive Measures to Increase Market Share
Q.
A.
Q. What is your assessment of market conditions?
A.
Nakayama The recovery trend in the market for pachislot
What kind of reforms do you plan next?
machines is becoming clearer.
Nakayama We are setting course to claim a bigger
The 2004 regulatory revision drove recovery in the pachinko machine
market share.
market because the new regulations afforded greater development free-
We have dramatically increased the level of pachinko machines unit sales
dom. In contrast, the pachislot machine market began shrinking because
from about 100,000 units for fiscal 2008 to more than 350,000 units
the new regulations limited the game elements that companies were
for fiscal 2009 and fiscal 2010. For pachislot machines, developing ma-
able to offer. From the second half of 2009, however, the pachislot
chines that earn player support has taken time since the 2004 regulatory
machine market began to recover modestly. In the pachinko machine
revision. Finally, our efforts to date have begun bearing fruit. We are able
market, from 2008 machines with a strong gambling element began
to develop and provide pachislot machines well received in the market.
accounting for a growing share of machine installations. This caused
some players to leave the market. In response, pachinko halls created a
To sum up the past two years, Sammy has met targets for each year
by consistently bringing hit products to market and substantially improving
market with less of a gambling element by introducing lower than normal
profit margins. Consequently, we are becoming a strong organization.
“one yen pachinko” playing rates in order to attract a wider range of
Nevertheless, reforms are never finished. We must set even more ambi-
customers. While this has helped pachinko halls develop new customer
tious targets and continue to take on challenges. Reforms so far have
bases, it has curbed earnings.
Overview of the Reforms
Pachinko halls
Revision of pricing strategies
Strengthen development
capabilities
Market hit products
continuously
Increase high-margin
pachinko board sales ratio
Increase the utilization rates of
Sammy-brand pachinko machines
Spreading Sammy pachinko frames
Expanding share of installations
(Expanding market for the Company’s
pachinko machine boards)
Reduce capital investment
by purchasing pachinko boards
Strengthen communication
with pachinko halls through
marketing divisions
Reduce parts
procurement costs
Reuse parts
Analyze demand for newly
developed machines precisely
Increase precision of
parts ordering
Reduce parts disposal
Improve profit margin
19
I believe that manufacturers bear part of the responsibility for this
We aim to increase unit sales by at least 14% year on year, thereby claim-
negative effect because they did not supply the market with enough
ing one of the top three shares of the unit sales market.
pachinko machines that met the needs of pachinko players and pachinko
halls. Therefore, we are now developing new pachinko machines more
utilization rates. Amid the pachislot machines market’s ongoing recovery,
likely to satisfy market needs. Meanwhile, the pachislot machine market is
we will move ahead of competitors by creating pachislot machines that
recovering, a trend that has become pronounced since the beginning of
are within the scope of current regulations and earn user support. For
2010. The main reason for this upturn has been the penetration of pa-
fiscal 2011, we are targeting a 29% year-on-year increase in pachislot
chislot machines with market approval. Although the Group needed time
machine unit sales. However, given the very strong momentum of sales,
to develop the mainstay titles it launched from the second half of 2009,
we want to surpass this target and maintain the top share of the market.
it has finally realized products compliant with the current regulations and
satisfy users. I am confident we have contributed to the recovery of the
Pachinko and Pachislot Machine Business segment through collaboration
pachislot machine market.
−led by Sammy−among RODEO Co., Ltd., TAIYO ELEC Co., Ltd., and
Q.
A.
GINZA CORPORATION. Specifically, we intend to reduce costs through joint
Sammy’s pachislot machines have a long-standing reputation for high
Also, we must heighten the presence of the SEGA SAMMY Group’s
purchasing of parts and sharing development and marketing expertise.
What are your priority strategies for fiscal 2011?
Over the medium term, the distinction between winners and losers
Nakayama Amid business conditions that are separating
among manufacturers is likely to become pronounced as pachinko halls
winners from losers, Sammy will win out and expand its
become more selective. Leading manufacturers will dominate a growing
market share.
share of the market. In response, Sammy intends to become a consistent
Sammy is becoming an organization that can respond immediately and
winner by expanding market share and heightening profit-creating capabil-
produce stable earnings no matter how business conditions change. Con-
ities. Over the past two years, we have established a solid foundation that
tinuing to evolve is its top priority.
will enable us to achieve this goal.
In fiscal 2011, the pachinko machine business will continue to reduce
costs and sell high-margin pachinko boards while selling mainstay titles.
Gross Profit of Pachinko Hall Operators per Pachinko and Pachislot Machine*
Creating Group Synergies in the Pachinko and Pachislot Machine Business
Yen
5,000
Multibrand strategy aimed at increasing share of machine installations
4,000
Cost reduction through
joint purchasing of parts
3,000
0
Jun.
Jul.
Aug.
Sep.
Oct.
2009
Pachinko machines
Pachislot machines
* Per day industry average
Source: Daikoku Denki Co., Ltd., DK-SIS data
20
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
2010
May
Jun.
Sharing of development/
marketing expertise
Using SEGA’s Creativity at All Points of Contact with Customers
SEGA’s Reforms to Date
Q.
A.
Could you summarize reforms you have carried out so far?
Usui Giving priority to balancing revenues and expenses,
we have reformed our cost structure.
Q. What
concrete measures have you taken, and how do
you evaluate them?
A.
Usui We achieved our goal of building a system in prepa
ration for resurgence.
In the Amusement Machine Sales Business segment, we stopped the
When I became the president of SEGA in May 2008, we set out CHANGE
2011−Revitalizing SEGA as a three-year management vision that called
development of certain large, high-end products due to the tough business conditions amusement center operators are facing. In the Amusement Center Operations segment, we established withdrawal standards
on SEGA to achieve three objectives: optimization of core operations,
based on amusement centers’ gross profit. We closed or sold amusement
rapid achievement of profitability in new domains, and expansion of
earnings and stable generation of free cash flow. In fiscal 2009 and 2010,
we focused on building a cost structure suited to business size and on
centers that did not meet these standards due to inadequate profitability
or potential. By the end of fiscal 2010, we had 260 amusement centers,
down from 322 at the previous fiscal year-end. As a result, the segment’s
balancing revenues and expenses. We have taken forward-looking mea-
capital investment decreased from ¥14.8 billion for fiscal 2009 to ¥7.7
sures that emphasize efficiency in preparation for full-scale offensive
billion for fiscal 2010. Consequently, depreciation and amortization fell
measures. For all businesses, we have applied a policy of investing in
from ¥15.9 billion to ¥8.2 billion. In the Consumer Business segment’s
carefully selected products and businesses for which we can predict
home video game software business, we significantly consolidated titles
return on investment accurately.
marketed in Japan. In fiscal 2010, we marketed 17 titles in Japan, compared with 36 titles in the previous fiscal year. In response to a slowdown
in the overseas game software market, we closed one North American
development subsidiary.
By reducing titles under development, we achieved year-on-year
decreases in R&D expenses and content production expenses* of 32%
Increasing Development Efficiency by Streamlining the Number of
Titles in Japan
Restructuring Amusement Center Operations
%
Centers
Titles
Billions of yen
110
60
100
40
200
90
20
20
0
80
0
0
600
Closed or sold amusement centers with
inadequate profitability or potential
462 centers
400
60
36 titles
260 centers
17 titles
Billions of yen
Billions of yen
20
18
10
9
0
0
–10
05
40
06
07
■ Amusement centers (left)
Existing amusement center sales year on year (right)
■ Operating income (loss) of Amusement Center Operations
08
09
10
–9
FY
06
07
08
09
10
FY
■ Game software titles in Japan (left) R&D expenses and content production expenses of Consumer Business (right)
■ Operating income (loss) of Consumer Business
21
for the Amusement Machine Sales Business segment and 40% for the
it has become possible to play games at various times and places. As a
Consumer Business segment. Efforts to improve development efficiency
result, attitudes to game playing have broadened. In such an environment,
were particularly successful in the Consumer Business segment, which
SEGA will use intellectual properties to entertainingly occupy customers’
posted operating income.
free time. We intend to extend and evolve the traditional idea of what
a game is and offer customers worlds that become more fun the more
In addition, we curbed fixed cost by rightsizing personnel numbers to
suit business size and restored cost flexibility. SEGA reduced personnel
they participate. CHANGE 2011 calls on SEGA to become an unrivaled
expenses roughly ¥8.5 billion by offering early retirement to approximately
entertainment and content provider that can offer outstanding entertainment
900 employees in fiscal 2008 and fiscal 2009.
to customers in their everyday lives at any time and in any location.
To summarize progress under CHANGE 2011, we still face tasks in
In order to take advantage of SEGA’s competitive advantages in new
relation to rapid achievement of profitability in new domains. However,
markets, we must develop and offer content tailored to suit the particular
we have balanced revenues and expenses by controlling R&D expenses
aspects of customers’ everyday lives. These efforts should capitalize on
and curbing fixed costs. Therefore, I believe steady progress in heightening
SEGA’s strong development capabilities and considerable experience to ven-
efficiency has cemented our foundation as we head toward resurgence.
ture beyond the limits of the traditional game market. Because we believe
* From fiscal 2010, in order to directly link content production expenses, which have been trending upward
in recent years, to earnings and enable appropriate presentation of income and expenses for fiscal periods,
the Company changed its accounting policy for the treatment of cost of sales from recognition when
production expenses arise to recognition at time of sale.
putting such initiatives into practice requires creating an organization that
SEGA’s Growth Strategy
Q.
A.
As entertainment diversifies, what strategies do you plan
to follow?
Usui We will develop and provide content tailored to suit
particular aspects of customers’ everyday lives.
spans businesses laterally, we embarked upon major business restructuring.
Q.
A.
What kind of restructuring are you undertaking at
the moment?
Usui We are reorganizing so that businesses better
reflect customer needs.
As platforms diversify and attitudes toward game playing broaden, our
classification of businesses into the Amusement Machine Sales Business
Customers use an increasingly wide range of platforms. As well as dedicated
segment, the Amusement Center Operations segment, and the Consumer
game machines or amusement arcade machines, customers play games
Business segment is becoming less meaningful for customers. Therefore,
using smartphones and other mobile phones and SNS. In our everyday lives,
in July 2010 we introduced a regional, rigorously customer-oriented system.
SEGA’s Business Restructuring
Previous business classification
New system: Rigorously customer-oriented, enables lateral business development across divisions
Domestic Regional Headquarters
Amusement Arcade Machine
Sales Division
Domestic Amusement Arcade
Machine Sales Division
Amusement Center
Operations Division
Amusement Overseas Division
Amusement Production
Procurement Headquarters
Amusement R&D Headquarters
Consumer Business Division
22
Domestic Amusement
Center Operations Division
Domestic Consumer
Business Division
Overseas Regional Headquarters
• Introduction of regional
system
• Integration of development
and production
North America and Europe Division
China and Asia Division
Development and Production Headquarters
R&D Headquarters
R&D Solutions Headquarters
Production Procurement
Headquarters
We reorganized business divisions under an Overseas Regional Headquar-
of revenue-sharing and initiatives to invigorate the market, we will secure
ters and a Domestic Regional Headquarters. This reorganization aims to
earnings despite tough market conditions.
provide customers in each region with content suited to their needs.
Further, we established a Development and Production Headquarters,
the Amusement Machine Sales Business segment and the Amusement
combining the development functions of the amusement machine sales
Center Operations segment. Accordingly, we will step up efforts to build
business and the game software business. In addition to enabling custom-
earnings platforms overseas, focusing on emerging countries.
er-oriented development transcending divisional boundaries, this reorgani-
Q.
A.
zation will promote the sharing of each business’ accumulated expertise,
experience, and technology by removing vertical organizational barriers.
Q.
What specific strategies will you pursue overseas?
Usui SEGA will curb risk while heightening the probability
of success.
The Amusement Machine Sales Business segment and
the Amusement Center Operations segment are facing
Aiming to contain risk and increase the likelihood of success, we will form
alliances with partners based on our business needs. For example, we have
tough business conditions. What is your basic strategy
A.
In the long term, we have to develop businesses overseas to grow
concluded an entertainment facilities licensing agreement with a developer
for these segments?
in the United Arab Emirates, Emaar Malls Group. We cut the tape on our
Usui SEGA will continue taking measures aimed at invigo-
first indoor entertainment facility based on this agreement, SEGA REPUBLIC,
rating Japan’s market while stepping up the development
in a large shopping mall in Dubai in spring 2009. Because such businesses
of overseas business.
are licensing businesses, they promise stable revenue generation without
For the Amusement Machine Sales Business segment, which the shrinking
enlarging our balance sheet. In initiatives to develop the Amusement
of Japan’s amusement center market is affecting, we will adopt a strategy
Machine Sales Business segment overseas, we aim to redouble efforts in
emphasizing coexistence and coprosperity with amusement center opera-
Asia’s markets, which have particularly large potential demand. To this end,
tors. For BORDER BREAK, launched in fiscal 2010, we incorporated a reve-
we will form tie-ups with local companies in Taiwan in China. As well as ful-
nue-sharing business model that uses ALL.Net network service. This not
ly exploiting SEGA’s brand power, these alliances with local companies will
only reduces amusement center operators’ initial investment, it stabilizes
cover not only production and sales but also development, thereby realiz-
SEGA’s customer base and revenues. Through widespread introduction
ing product appeal and cost competitiveness that will win in local markets.
Breakdown by Title of Revenue-sharing Revenue
FY
2009
Title
2010
2011 (Plan)
Overseas Licensing Business Model that Curbs Risk and Secures
Stable Earnings
Granting licenses/providing facility development and
Overseas
Business
operationLicensing
expertise/machine
salesModel that Curbs Risk
and Secures Stable Earnings
Virtua Fighter 5 series
Overseas amusement center operators
facility developmentcompanies
Answer × Answer network quiz game series
Granting licenses/providing facility development and
Development/
operation expertise/machine
funding/operationalsales
management
BORDER BREAK
Overseas amusement indu
Shining Force Cross
License revenue/
machine sales revenue
HATSUNE MIKU
Project DIVA Arcade
Percentage*
Approx. 4%
Approx. 10%
Approx. 13%
SEGA REPUBLIC
* Revenue from the utilization of revenue-sharing titles as a percentage of revenue from amusement
arcade machines and prize game machines in Japan’s market
23
Feature
Exploiting Intellectual Properties to the Utmost
Concerted Strategic Use of
Intellectual Properties Begins
Using character intellectual properties strategically will create a chain
of profit-making opportunities. The SEGA SAMMY Group has begun
concentrating on strategies that will bring its combined strength to
bear on developing entertainment businesses. Here’s a close-up of
the organization leading this effort, the SEGA SAMMY Group Character Licensing Subcommittee, and the steps it is taking.
Establishing the Character Licensing Subcommittee
When developing an entertainment business, vigorously capitalizing on
character intellectual properties is a key differentiating factor. In recent
years, strategic use of intellectual properties has become even more important as growth in Japan’s market has slowed due to low birth rates.
For example, we can increase profit-making opportunities by exposing
customers to character intellectual properties at a range of points of contact in order to “lock in” customers or by rolling out character intellectual
properties globally through a range of media.
The SEGA SAMMY Group boasts an abundance of highly appealing
character intellectual properties such as Sonic. Until now, however, intellectual properties have been scattered across Group companies, with each
company taking separate measures to increase the value of intellectual
properties. Seeking closer collaboration among Group companies in order
to fully realize the potential of its precious management resources, the
Group established the SEGA SAMMY Group Character Licensing Subcommittee in April 2008.
Already, the subcommittee has initiated concrete measures for
BAKUGAN, which is gaining popularity worldwide, and Lil’Pri, which SEGA
and Shogakukan Inc. developed jointly.
Going forward, the subcommittee will lead efforts to maximize the
value of intellectual properties efficiently and effectively through collaborations among Group companies that lead to the joint development or
mutual use of the broad spectrum of intellectual properties that the SEGA
SAMMY Group owns. Further, the subcommittee will develop and foster
new intellectual properties, acquire powerful intellectual properties from
outside the Group, and reinforce tie-ups with business partners. Such
efforts will give the subcommittee a major role in bedding down charactermerchandising structures throughout the Group.
24
Members of the SEGA SAMMY Group
Character Licensing Subcommittee
セガサミーグループキャラクターライセンス委員会
SEGA CORPORATION
Development/manufacturing/sale of
Sammy Corporation
amusement arcade machines
Development/manufacturing/sale of
Operation of amusement centers
pachinko and pachislot machines
Development/sale of game software
TMS ENTERTAINMENT, LTD.
Planning/production/sale of
animation/animated movies
Advancing
multifaceted
development of content
through collaboration
among 5 mainstay
Group companies
SEGA TOYS CO., LTD.
Development/manufacturing/
sale of toys
Sammy NetWorks Co., Ltd.
Distribution of content for mobile phones
Role of the Subcommittee
1. Mutual use of existing intellectual
properties among Group companies
2. Development / fostering of new
intellectual properties
3. Discovery/acquisition of powerful
intellectual properties outside the Group
セガサミーグループキャラクターライセンス委員会
We will consolidate character intellectual properties and strengthen collaboration within the Group.
Aiming to facilitate concerted efforts within the Group to maximize the value of character intellectual proper（株）セガ
SEGA SAMMY HOLDINGS and five mainstay
サミー（株） ties and develop and foster new character intellectual properties,アミューズメント機器の開発・製造・販売
アミューズメント施設の運営
遊技機の開発・製造・販売 Group companies established the SEGA SAMMY Group Character
Licensing Subcommittee in April 2008.
ゲームソフトの開発・販売
The subcommittee plays a central role in enabling mutual use of Group companies’ appealing character
intellectual properties by encouraging collaboration among Group companies in planning, product commer-
グループ主要
５社が連携して、
new characters and discovering and acquiring character intellectual properties outside the Group or acquiring
マルチコンテンツ
（株）セガトイズ
product commercialization rights.
玩具の開発・製造・販売
展開を推進
cialization, sales promotion, and marketing. The subcommittee’s other tasks include developing and fostering
A subcommittee meeting
（株）
トムス・エンタテインメント
アニメーション・映画の企画・制作・販売
25
Feature
BAKUGAN
Strengthening Operations in Japan−Bakugan LLP
BAKUGAN is a toy that SEGA TOYS CO., LTD., and Spin Master Ltd., a toy manufacturer headquartered in Canada, developed jointly. Our customers can watch
animation and buy products related to BAKUGAN in roughly 120 countries. On its
own, the toy is a major hit, with 180 million units sold since launch. In November
2009, seeking to tap the burgeoning potential of BAKUGAN content in Japan’s
market, five SEGA SAMMY Group companies jointly invested in and established
Bakugan Limited Liability Partnership (Bakugan LLP). With overall control of production and merchandising for the BAKUGAN business in Japan, Bakugan LLP is
forging collaborations among Group companies.
Multiplying Value through Cross-Media Strategies
For BAKUGAN, we are moving forward with a cross-media strategy covering toys
that combine cards and BAKUGAN, animation, kids’ card games, and a range of
licensed products. As of June 18, 2010, we had granted licenses to 20 companies, and this number continues to grow. Also, we are creating synergies among
these products. For example, licensed products are packaged with cards usable in
the kids’ card game machine BAKUGAN Arcade Battlers, released in July 2010,
as well as with toys. At the same time, we are advancing various initiatives to expand the BAKUGAN fan base. These include familiarizing people with how to
play BAKUGAN by holding teaching events and competitions throughout Japan.
Lil’Pri
Pursuing an Array of Profit-Making Opportunities
Lil’Pri is content for girls that SEGA and Shogakukan developed jointly. Deriving
its name from an abbreviation of “little princess,” Lil’Pri is a treasure trove of
things little girls love, such as songs, dances, fashion, magic, and celebrities.
We are optimizing the value of character intellectual properties through multifaceted development of content. Working in collaboration, the SEGA SAMMY
Group and the Shogakukan Group are installing kids’ card games at amusement centers, marketing toys, launching software for Nintendo DS, releasing
serialized comics, producing animation, and creating tie-ups with celebrities.
26
Toys
When playing BAKUGAN, players use their fingers to shoot BAKUGAN plas-
Games
tic balls over cards, which transform the balls into figures instantaneously.
We unveiled BAKUGAN kids’ card game machines
Players then compete for the cards. The player with the best shooting tech-
in July. The cards that the machines pay out
nique and card strategy wins. Because there are 120 types of BAKUGAN
are not only usable in the kids’ card game but
and 200 kinds of cards, players can develop unique playing styles and skills
also in BAKUGAN toy battles. Linking kids’ card
and enjoy an almost infinite variety of battles with opponents.
games and toys adds even more ways to enjoy
PC/Mobile Phone Content
A dedicated web site is packed with every-
BAKUGAN. Moreover, we plan to launch software
for Nintendo DS in December.
thing players need to know about BAKUGAN,
including information on BAKUGAN playing
methods, explanations of terminology, a blog
by BAKUGAN master Moetaro Honoo, event
Related Goods
information, and new product information.
Helping the popularity of BAKUGAN snow-
Animation
ball, companies outside the Group market
At present, 25 TV stations, including TV
an extensive range of licensed products.
TOKYO Corporation affiliates, air Bakugan
Various goods tie in with BAKUGAN by
Battle Brawlers: New Vestroia. Our multime-
including BAKUGAN cards usable in kids’
dia roll-out strategy is a major reason why
card game amusement arcade machines
BAKUGAN captivates kids. In the same month
as new characters appear in the animation
series, we launch corresponding toys.
and toys.
© SEGA TOYS/SPIN MASTER/BAKUGAN 2 PROJECT • TX
© 2010 Activision Publishing, Inc. Activision is registered trademark of Activision Publishing, Inc.
All rights reserved. Published in Japan by SEGA under license from Activision.
Toys
Animation
SEGA TOYS offers toys for dress-
Six TV TOKYO affiliates and other TV
up games and role-playing games
stations began broadcasting the Hime
featuring the fashion items that
Chen! Otogi Chikku Idol Lil’Pri anima-
the main characters wear in the
animation series. The toys include
original cards usable in kids’ card
TV stations, including six TV TOKYO
affiliates, are currently showing the
Hime Chen! Otogi Chikku Idol Lil’Pri
animation series.
tion series from April 2010.
game machines.
PC/Mobile Phone Content
Games
We have launched an official web site that en-
Achieving high utilization rates,
ables fans to the check latest information on
Lil’Pri−Yubi Puru Hime Chen! is a kids’ card game
Lil’Pri games, comics, and goods. In addition, a
machine featuring a dress-up game and a rhythm
web site for mobile phones in-
game. Impressive upper and lower monitors and
cludes a rich lineup of content,
panels that cause the screens to vibrate when play-
ringtones, and wallpaper linked to
ers touch them differentiate this machine. August
kids’ card game machines.
saw the debut of software for Nintendo DS, Lil’Pri−
© SEGA
© SEGA SHOGAKUKAN JINNA MAI
© SSJ/LilPri-Project, TV TOKYO
DS Hime Chen! Apple Pink, which enables players
to enjoy original stories.
27
Bird’s eye view
SEGA SAMMY Group in the Entertainment Industry
Billions of yen
Net Sales 1
Nintendo
Billions of yen
Operating Income 1
1,434.3
%
Operating Margin 1
Nintendo
356.5
SANKYO
25.0
SEGA SAMMY
384.6
SANKYO
55.7
Nintendo
24.9
NAMCO BANDAI
378.5
SEGA SAMMY
36.7
SQUARE ENIX
14.7
KONAMI
262.1
SQUARE ENIX
28.2
SEGA SAMMY
9.5
SANKYO
222.6
KONAMI
18.6
CAPCOM
8.4
SQUARE ENIX
192.2
CAPCOM
5.5
KONAMI
7.1
CAPCOM
66.8
Heiwa
3.7
Heiwa
5.9
Heiwa
63.3
NAMCO BANDAI
1.8
NAMCO BANDAI
0.5
%
ROE 1
%
ROA 1, 2
Billions of yen
Market Capitalization 4
Nintendo
17.7
Nintendo
20.4
Nintendo
Heiwa
13.0
SANKYO
12.4
SANKYO
451.3
SQUARE ENIX
11.5
SEGA SAMMY
320.6
SANKYO
9.1
SEGA SAMMY
8.8
Heiwa
9.1
KONAMI
258.7
KONAMI
7.3
SEGA SAMMY
8.5
SQUARE ENIX
235.8
SQUARE ENIX
6.3
CAPCOM
5.7
NAMCO BANDAI
227.7
CAPCOM
3.8
KONAMI 3
5.7
CAPCOM
119.5
NAMCO BANDAI
0.6
Heiwa
NAMCO BANDAI
–12.4
%
Share of Pachinko Machine Unit Sales 5
%
Share of Pachislot Machine Unit Sales 5
95.9
Billions of yen
Amusement Machine Unit Sales 1
Company S
18.0
SEGA SAMMY
21.3
SEGA SAMMY
45.1
Company S
17.2
Company S
13.6
NAMCO BANDAI
44.0
Company K
12.8
Company U
13.1
KONAMI
32.8
Company N
11.9
Company Y
9.5
CAPCOM
2.2
SEGA SAMMY
10.8
Company K
7.8
Company H
5.1
Company H
5.7
Company D
5.0
Company D
4.6
Company F
4.7
Company A
3.9
Billions of yen
Amusement Center Operation Sales 1
Millions of units
Unit Sales of Home Video Game Software (Global)
ROUND ONE
82.1
SEGA SAMMY
26.7
NAMCO BANDAI
65.3
SQUARE ENIX
26.6
SEGA SAMMY
54.7
NAMCO BANDAI
22.7
SQUARE ENIX 6
52.2
KONAMI
20.2
12.5
AEON Fantasy
43.7
CAPCOM
ADORES 7
19.5
TECMO KOEI
CAPCOM
11.9
TECMO KOEI
5.7
3.3
Note: The above is intended to give an idea of the Group’s position in the industry and only covers companies for which information can be obtained from published documents, such as listed
companies or over-the-counter (OTC) companies. Because there are unlisted companies that do not disclose information, this is not a completely accurate industry ranking.
1 Respective companies’ most recent settlement data. Source: Respective companies’ published documents
2 ROA = Ordinary income ÷ Total assets
3 Calculated using net income before incomes taxes because KONAMI uses U.S. GAAP
4 Source: Calculated by the Company based on the closing prices at respective stock exchanges on March 31, 2010
5 2009. Source: Yano Research Institute Ltd.
6 “Amusement operations” including amusement centers and amusement arcade machines
7 Amusement center operations
28
4,434.2
Mainstay Businesses — Size of Related Markets and Our Position
The size of
represents the size of the market and the Group’s sales
Pachinko machine market size ¥978.9 billion 1
Pachinko Machine Business
The Group’s sales ¥103.1 billion
Pachislot machine market size ¥225.8 billion 1
Pachislot Machine Business
Amusement arcade machine market size ¥196.2 billion 1
Amusement Machine Sales Business 1
(including overseas sales of ¥6.2 billion)
Amusement center operations market size ¥573.1 billion 1
Amusement Center Operations 1
(including overseas amusement center sales of ¥5.4 billion)
Home video game software market size ¥2,271.9 billion 2
Home Video Game
Software Business
The Group’s sales 2
¥77.5 billion
1 Japan’s market size
2 Global market size
Sources: Pachinko machine market size, pachislot machine market size (fiscal 2010): Yano Research Institute Ltd.
Amusement arcade machine market size, amusement centers operations market size (fiscal 2009): JAMMA, AOU, NSA, Amusement Industry Survey 2008
Home video game software market size (2009): Famitsu Game White Paper 2010
29
Establishing an Unshakable Market Position
Composition of Net Sales
The pachislot machine business will concentrate efforts on devel-
¥160.3 billion
oping machines with gameplay that will revitalize the market.
41.7%
In the pachinko machine business, we intend to heighten our
presence by strengthening development capabilities and brand
Pachislot Machine
Business
13% ¥51.7 billion
power even further.
For details on market trends, please refer to the supplementary “INFORMATION” document.
Pachinko Machine
Business
27% ¥103.1 billion
Building a business platform that
to development processes in order to further
generates stable earnings
bolster development capabilities. Another
Accounting for approximately 41% of consoli-
distinctive feature of this business segment is
dated net sales, the Pachinko and Pachislot
its ability to cater to diversifying user needs
Machine Business segment is the SEGA
through a multi-brand strategy based on
SAMMY Group’s earnings driver. The business
Sammy, RODEO Co., Ltd., TAIYO ELEC Co.,
▶
segment’s core operating company, Sammy
Ltd., and GINZA CORPORATION.
Corporation, maintains a solid position as a
Operating income
leader in the pachislot machine market. Re-
market, earnings conditions are undergoing
¥29.5 billion
leased in 2004, the pachislot machine Hokuto
dramatic change due to regulatory revision.
No Ken shipped 620,000 units, setting an in-
Therefore, we aim to build an earnings struc-
Pachislot machine unit sales
dustry record for unit sales. Meanwhile, the
ture durable enough to function amid such
162,000 units pachinko machine business has built brand
change. To this end, we will establish a system
power and rapidly carved out one of the largest
in which the pachinko machine business and
shares of the pachinko machine market.
the pachislot machine business generate stable
hit products as well as enhance cost competi-
Other
1% ¥5.5 billion
Fiscal 2010 Business Results Overview
Net sales
¥160.3 billion
▶
▶
Down 0.8% year on year
Up 103.1% year on year
Pachinko machine unit sales
360,000 units
▶
Enabling these stable earnings, the
tiveness by reducing costs and shortening pro-
ty and development capabilities that constantly
duction lead times.
Pachinko board sales ratio
69.1%
ent, it is strengthening collaboration between
Up 58.6 percentage points
In the pachinko and pachislot machine
strengths of this business segment are creativi-
generate fresh types of entertainment. At pres-
▶
30
Basic Information
development divisions and marketing divisions
as well as introducing rigorous quality checking
Net Sales
Operating Income/Operating Margin
Billions of yen
Billions of yen
Pachinko and Pachislot Machine Unit Sales
%
Thousands of units
%
240
80
40
800
80
180
60
30
600
60
120
40
20
400
40
60
20
10
200
20
0
07
08
09
■■ Net sales
10
160.3
11
FY
0
07
08
09
10
11
FY
0
0
07
08
09
10
11
200.0
■■ Operating income (left)
29.5
35.0
■■ Pachinko machines (left)
360
410
Plan
● Operating margin (right)
18.4
17.5
● Pachinko board sales ratio (right)
69.1
30.4
Plan
■■ Pachislot machines (left)
160
FY
0
210
Plan
FY 2010 Overview
Earnings rise significantly thanks to AN
increase in pachislot machine unit sales,
for 10.8% of the pachinko machine market, down
AN IMPROVEMENT in pachinko board sales
from 11.7% for the previous year, and 21.3% of the
up RATIO, and cost reduction
pachislot machine market, up from 13.5% for the
The pachinko machine business saw unit sales de-
previous year.
cline 8.1% year on year, to 360,000 units, which
was partly attributable to the absence of the contri-
the profit margin. These included reducing cost of
bution to sales that the hit product Pachinko CR
sales and operating expenses by withdrawing from
Hokuto No Ken made in the previous fiscal year.
the unprofitable pachinko and pachislot machine
Consequently, the business recorded an 11.5%
peripheral business, lowering part procurement
year-on-year decrease in net sales, to ¥103.1 billion.
costs centered on LCDs, and revising pricing strate-
Nevertheless, sales of flagship titles remained solid.
gies for pachinko machines and pachislot machines.
Pachinko CR SOUTEN-NO-KEN sold 94,000 units,
In particular, stepped-up sales efforts for pachinko
while Pachinko CR Sengoku Ranbu Aoki Dokugan
boards, which reduce the capital investment burden
shipped more than 50,000 units. Ongoing strength-
on pachinko hall operators, contributed to improved
ening of development capabilities is steadily raising
profitability. As a percentage of pachinko machine
the level of unit sales across a range of key titles.
business unit sales, pachinko board sales rose from
the previous fiscal year’s 10.5% to 69.1%.
Regarding the pachislot machine business,
For 2009, the SEGA SAMMY Group accounted
In earnings, multifaceted initiatives improved
Pachinko CR SOUTEN-NO-KEN
Approved No. SAG-309
© Sammy
Also, with our sights set on the current fiscal
Pachislot Psalms of Planets Eureka Seven, which
incorporates popular animation, recorded 56,000
year and onward, we strategically reorganized
unit sales and helped reactivate a market that has
businesses. For example, we merged with Sammy
stagnated since the 2004 regulatory revision.
Rental Services Co., Ltd., following the ending of
Despite strategically postponing the release of
rental plans for pachislot machines. And, GINZA
certain major titles until the current fiscal year, the
CORPORATION, responsible for one arm of
business posted year-on-year increases of 32.2%
our multibrand strategy, became a wholly owned
in total unit sales, to 162,000 units, and 53.0% in
subsidiary.
net sales, to ¥51.7 billion.
As a result of these efforts, although net sales
edged down 0.8% year on year, to ¥160.3 billion,
operating income was up 103.1% year on year,
to ¥29.5 billion. The operating margin improved
9.4 percentage points from the previous fiscal year,
Pachislot Psalms of Planets Eureka Seven
© 2005 BONES / Project EUREKA • MBS
© Sammy
© 2009 NBGI
to 18.4%.
31
FY 2011 Outlook and Strategy
Target higher revenues and earnings
business plans to introduce 12 titles, including
SEGASAMMY
by steadily building up unit sales and
the major Sammy-brand title Pachinko CR
Hokuto No Ken Raoh. As a result, the business
Insight
reducing costs
The pachinko machine market is showing signs
aims to grow unit sales 50,000 units, to
Pachinko Machine Boards
of slight deceleration. This is because casual
410,000 units, and achieve a 25.6% rise in
Pachinko machines comprise two parts: frames
players are leaving the market as installations
net sales, to ¥129.5 billion. For the current fis-
and boards. Controlling the paying out of
of pachinko machines with a strong gambling
cal year, although pachinko board sales as a
pachinko balls, the frame has attached to it a
element increase. At the same time, the growth
percentage of pachinko machine business
handle, a glass frame unit, and speakers. The
of the “one yen pachinko” market, aimed at
sales are likely to decline year on year due to
board comprises LCDs, tulip-shaped devices,
broadening customer bases, is reducing
the introduction of new-model pachinko
and numerous pins. The board incorporates
pachinko halls earnings and thereby curbing
frames from the launch of Pachinko CR Hokuto
many electronic components, such as boards
machine replacement. On the other hand, unit
No Ken Raoh onward−in order to heighten
and sensors that control gameplay, including
sales per title and utilization rates indicate that
quality and security−the business will maintain
images and win chances presented by the
the pachislot machine market has bottomed
its profit margin by reducing part procurement
pachinko machine’s LCDs, and payouts. The
out. Following the 2004 regulatory revision, this
costs and reusing parts rigorously.
boards give pachinko machines their distinctive
market slumped. However, products compliant
with the current regulations and popular
ing a 47,000-unit increase in unit sales, to
continuously for certain periods, pachinko hall
among customers are entering the market. In
210,000 units, and a 22.8% rise in net sales,
operators can purchase pachinko boards and at-
light of these market trends, for fiscal 2011 the
to ¥63.5 billion. For fiscal 2011, the business
tach them to frames installed at pachinko halls.
Pachinko and Pachislot Machine Business seg-
has slated 13 titles for marketing, including the
The price of a pachinko board is less than the
ment is targeting year-on-year increases of
mainstay Sammy-brand title Pachislot SOUTEN-
price of an entire machine. This arrangement
24.8% in net sales, to ¥200.0 billion, and
NO-KEN. In conjunction with these efforts, we
meets the needs of pachinko hall operators
18.6% in operating income, to ¥35 billion.
intend to enhance the profit margin by reusing
looking to hold down capital expenditures. For
parts, particularly those related to LCDs, which
manufacturers, sales of pachinko boards not
account for a large proportion of costs.
only offer higher profit margins than sales of
Looking at individual businesses and strat-
egies, in fiscal 2011 the pachinko machine
The pachislot machine business is target-
characteristics. Because frames can be used
machines, but also help maintain the manufacturer’s share of machine installations. This is an
efficient business model for both pachinko hall
operators and pachinko machine manufacturers.
Boards
Pachislot SOUTEN-NO-KEN
Approved No. SAH-310
© Sammy
32
Pachinko CR Hokuto No Ken Raoh
© Buronson & Tetsuo Hara/NSP 1983
© NSP 2006
Approved No. SAF-308
© Sammy
Frame
Leading Market Revitalization
Amusement Machine
Sales Business
BORDER BREAK
© SEGA
We are committed to developing products that increase investment
¥45.1 billion
efficiency for amusement center operators, providing stable long-term
11.7%
earnings for the Group, and broadening user-base in the market.
Domestic Amusement
Machine Sales Business
10% ¥38.9 billion
Overseas Amusement
Machine Sales Business
2% ¥6.2 billion
Net sales
Basic Information
Focusing on developing products that
uses the ALL.Net network service to link amuse-
exploit advanced technologies and
ment centers. In a similar vein, we have been
stimulate the market
promoting standardized cabinets that enable
Its considerable share of amusement arcade ma-
amusement center operators to changeover to
chine sales make this segment a major manufac-
new products rapidly and at low cost.
turer. An unerring ability to develop novel
products is its greatest strength. Over many years,
FY 2010 Overview
it has generated demand by creating a spectrum
Improving profitability through a range
of new genres. The business segment has a par-
of measures to reduce costs
Operating income
ticularly large lead in the market for the develop-
In fiscal 2010, the segment’s net sales declined
¥7.0 billion
ment of large, high-value-added machines
27.1%, to ¥45.1 billion, due to the absence of
differentiated from home video game consoles.
the previous fiscal year’s major title launches.
Another strength is an extensive lineup of prod-
However, operating income rose 3.0% year on
ucts that not only cater to high-frequency players
year, to ¥7.0 billion, and the operating margin
but also appeal to families and a broad base of
improved 4.6 percentage points, to 15.7%. R&D
other players.
expenses and content production expenses de-
creased from ¥11.4 billion for the previous fiscal
¥45.1 billion
▶
▶
R&D expenses/content production expenses
¥7.8 billion
▶
Facing a flat amusement center market in
recent years due to the downturn in consumer
year to ¥7.8 billion. Further, we reduced costs by
spending, we have turned to leading-edge tech-
adopting standardized cabinets, introducing new
nology to reactivate the market by improving
multipurpose computer graphics boards for ar-
amusement center operators’ investment effi-
cade games−RINGEDGE and RINGWIDE, which
ciency. At the same time, we have concentrated
reduce costs more than 30% compared with our
on building an earnings platform that will main-
previous computer graphics boards−and lowering
tain and expand our customer base while stabiliz-
part procurement costs.
ing earnings over the long term. An example of
initiatives to revitalize the market is our introduc-
a revenue-sharing business model, enjoyed favor-
tion of a revenue-sharing business model that
able utilization and grew revenues. By fiscal
In fiscal 2010, BORDER BREAK, which uses
33
Net Sales
Operating Income/Operating Margin
Billions of yen
Billions of yen
R&D and Content Production Expenses
%
Billions of yen
%
80
12
20
16
20
60
9
15
12
15
40
6
10
8
10
20
3
5
4
5
0
0
0
07
08
09
■■ Net sales
0
10
11
45.1
53.0
■■ Operating income (left)
Plan
FY
07
08
09
10
11
7.0
5.5
15.7
10.4
FY
Plan
07
08
09
10
11
FY
0
■■ R&D and content production
expenses (left)
● % of net sales (right)
7.8
8.5
17.3
16.0
Plan
SEGASAMMY
Insight
Reactivating the Amusement Market
SEGA is promoting revenue-sharing in which it
provides cabinets at low prices and content
without charge and then shares revenues
from machine utilization with amusement
center operators. This business model uses
SEGA’s ALL.Net network service. While this
enables amusement center operators to introduce amusement arcade machines with a
minimal initial investment, SEGA can secure a
continuous flow of earnings by maintaining
the market value of content, rather than only
receiving revenues from machine sales.
We are energizing the industry. For example,
we are furthering the penetration of standardized cabinets that allow the flexible, low-cost
marketing of products as well as providing
new multipurpose computer graphics boards
for arcade games−RINGEDGE and RINGWIDE
−which enable us to develop amusement
arcade machines more efficiently.
Revenue-sharing business model focused
on coexistence and coprosperity
with amusement center operators
Game users
③
①
Revenues shared in
accordance with
machine utilization
Cabinets supplied
at low prices,
content provided
without charge
②
Play fees
Amusement center
operators
year-end, four amusement arcade machine titles
year and market five new titles that exploit highly
were operating under the revenue-sharing busi-
appealing content, including BAKUGAN and
ness model. These titles are helping generate sta-
Transformers.
ble earnings. In addition, kits for upgrading such
mainstay titles as SEGA Network Mah-jong MJ4
in the Japanese market, strategies focused on
Evolution sold solidly.
Asian markets and China in particular are critical
if this business segment is to grow earnings over
the medium-to-long term.
Target further incorporation of
revenue-sharing business model
leading development expertise accumulated
Challenging conditions are likely to persist in the
over many years and brand power in overseas
amusement industry, due to the downturn in
markets to develop products that reflect game-
consumer spending since the emergence of con-
play preferences and characteristics, and price
fusion in financial markets as well as the continu-
competitiveness in each market. In these efforts,
ing difficulty amusement center operators are
we will look at efficient and effective ways of join-
Accordingly, we will bring to bear industry-
having in raising funds. Therefore, this business
ing forces with overseas local companies for
segment views continuing to heighten investment
product development, production, and sales.
efficiency for amusement center operators while
stabilizing earnings over the long term as a key
targeting a 17.5% year-on-year increase in net
strategy going forward. In fiscal 2011, the busi-
sales, to ¥53.0 billion, due to the transfer of the
ness segment plans to market an amusement ar-
kids’ card game business from the Amusement
cade machine version of HATSUNE MIKU Project
Center Operations segment to the Amusement
DIVA, which was very well received in fiscal 2010.
Machine Sales Business segment. Meanwhile,
This new offering, HATSUNE MIKU Project DIVA
we anticipate a 21.4% year-on-year decline in
Arcade, will use the same content and be based
operating income, to ¥5.5 billion, resulting from
on a revenue-sharing business model. We intend
the equalization of R&D expenses and content
to step up such initiatives that create synergies
production expenses recognition−due to the
through the multiple deployment of content in
elimination of the effect of a change in the
collaboration with the Consumer Business seg-
accounting standard relating to the expenses−
ment. Also, in the fall the business segment plans
and an increase in cost of sales and operating
to launch SENGOKU TAISEN as a major trading
expenses. R&D expenses and content production
card game, an area where the Group has out-
expenses are expected to increase 9.0% year
standing competitiveness. In fiscal 2011, the kids’
on year, to ¥8.5 billion.
card game business * will increase the utilization
* From fiscal 2011, the kids’ card game business was transferred from
the Amusement Center Operations segment to the Amusement
Machine Sales Business segment.
of the eight titles marketed in the previous fiscal
34
Amid the continuing severity of conditions
For fiscal 2011, the business segment is
Strengthening Profit
Structures
Amusement
Center
Operations
Number of Amusement Centers in Japan/
Net Sales from Existing Amusement Centers
Operating Loss/Capital Expenditures
and Depreciation and Amortization
Centers
%
Billions of yen
600
110
20
450
100
10
300
90
0
150
80
–10
0
–20
0
07
08
09
10
11
260
248
● Existing amusement center sales (right) 91.7
95.8
Plan
■■ No. of amusement centers (left)
FY
07
08
09
10
11
–1.3
–1.5
■■ Capital expenditures
7.7
6.6
● Depreciation and amortization
8.2
■■ Operating loss
6.9
Plan
Aiming to achieve profitability at an early stage by revising its
¥54.7 billion
amusement center portfolio and strengthening operations.
14.2%
FY
Domestic Amusement
Center Operations
13% ¥49.3 billion
Basic Information
Various amusement center formats and
Overseas Amusement
Center Operations
1% ¥5.4 billion
collaboration with the Amusement
centers were below the previous fiscal year,
Machine Sales Business segment are this
earnings began to improve. Operating loss con-
Although net sales of existing amusement
business segment’s strengths
tracted from ¥7.5 billion to ¥1.3 billion, due to
Nationwide, SEGA operates a diverse network of
the curbing of capital expenditures by revising
amusement center formats to suit different loca-
our amusement center portfolio and limiting
tions, including TOKYO JOYPOLIS, SEGA WORLD,
amusement center openings, lowering deprecia-
Net sales
and CLUB SEGA. Coordinating with the Amuse-
tion, reducing personnel expenses, and heighten-
¥54.7 billion
ment Machine Sales Business segment, this seg-
ing operational efficiency.
▶
ment is trying to attract a wider customer base.
Due to contraction of the market, it is revising
¥—1.3 billion
its amusement centers portfolio and increasing
Continue and intensify measures to
efficiency to move into the black rapidly.
improve profitability
▶
Operating income (loss)
Improved
¥6.1 billion
year on year
Amusement centers in Japan
260 centers
▶
Down
62 from previous
fiscal year-end
TOKYO JOYPOLIS
In fiscal 2011, despite some signs of bottoming,
FY 2010 Overview
overall the industry will likely see harsh conditions
Enhancing earnings by reforming our
continue. We project net sales will decline 19.6%,
amusement center portfolio
to ¥44.0 billion, while operating loss remains at
Continuing from fiscal 2009, this business seg-
¥1.5 billion. We will continue closing or selling
ment fortified earnings structures by closing or
amusement centers with inadequate profitability or
selling amusement centers in Japan with inade-
potential. The business segment plans to open five
quate profitability or potential. In fiscal 2010, we
amusement centers and close 17. Amusement
opened four amusement centers and closed or
centers in Japan at fiscal year-end will be 248,
sold 66. By fiscal year-end, we had 260 amuse-
down 12 from the previous fiscal year-end. We are
ment centers in Japan, down 62 from the previ-
targeting a 4.2% decrease in existing amusement
ous fiscal year-end. To boost profitability, we
center net sales. We aim to continue reforming
closed eight amusement centers in North America.
our amusement center portfolio and reinforcing
Consequently, net sales declined 23.2%, to ¥54.7
operations to improve earning capabilities.
billion. SEGA’s existing amusement centers in
Note: From fiscal 2011, the kids’ card game business was transferred
from the Amusement Center Operations segment to the
Amusement Machine Sales Business segment.
Japan saw net sales decrease 8.3% as consumer
spending slumped.
35
Creating Entertainment with Unconventional Ideas
Consumer Business
This business segment will improve profitability by increasing
¥121.5 billion
development efficiency in the home video game software business
31.6%
and advancing multimedia roll-outs of intellectual properties
Home Video Game
Software Business
20% ¥77.5 billion
Network Games and
Other Business
Basic Information
Home Video Game Software Business
Selecting and concentrating titles for
responsible for the online and mobile content
development
business. SEGA provides a diverse range of game
SEGA CORPORATION’s home video game soft-
content that is used for smartphones and other
ware business accounts for 60% of the Consum-
mobile phones and online through PCs. The
er Business segment’s net sales. This business is
mainstay services that Sammy NetWorks pro-
pursuing a multiplatform strategy that entails pro-
vides are the online game for PCs, 777 Town.
viding software for a wide range of platforms.
net, and content for mobile phones, Sammy
Owning a large array of such intellectual proper-
777 Town.
Operating income
ties as Sonic the Hedgehog, the business boasts
¥6.3 billion
particularly powerful brand appeal overseas. In
business. SEGA TOYS is a fabless company,
the European market, the business includes the
meaning it does not have production facilities. It
major development studio SPORTS INTERACTIVE
has built a distinctive position by developing and
Ltd., which develops the Football Manager se-
marketing unique products that go beyond the
▶
• Toy sales business
• Online and mobile
content business
• Animation business
through Group companies.
ries, and The Creative Assembly Ltd., responsible
limits of the toy industry. In particular, BAKUGAN,
for the Total War series. By concentrating our
which SEGA TOYS developed with the Canadian
R&D expenses/content production expenses
management resources on titles that promise re-
toy manufacturer Spin Master Ltd., is expanding
liable returns, we are furthering development effi-
its fan base. In the United States, BAKUGAN won
ciency and improving earnings.
the 2009 Toy of the Year Award and claimed the
11% ¥44.0 billion
Net sales
¥121.5 billion
▶
▶
Moved into the black
Home video game software unit sales
26.7 million
¥19.6 billion
▶
SEGA and Sammy NetWorks Co., Ltd., are
SEGA TOYS CO., LTD., operates the toy sales
Boys Toy of the Year Award for two consecutive
36
Network Games and Other Business
years. In around 120 countries, animation based
Operating companies establishing
on BAKUGAN is broadcast and related products
unique positions in their business areas
are available.
This business mainly comprises the online and
mobile content business, the toy sales business,
pany TMS ENTERTAINMENT, LTD., is engaged in
and the animation business.
the production of many major products that have
The animation business’ core operating com-
Net Sales
Operating Income (loss)/Operating Margin
Billions of yen
Billions of yen
R&D and Content Production Expenses
%
Billions of yen
160
10
10
40
120
5
5
30
80
0
0
20
40
–5
–5
10
–10
0
0
07
08
09
10
11
–10
FY
07
08
09
10
11
7.0
■■ Home video game software business 77.5
52.9
■■ Operating income (loss) (left)
6.3
■■ Network games and other business
47.1
5.2
44.0
Plan
FY
07
08
09
10
■■ R&D and content production expenses 19.6
11
FY
18.1
Plan
7.0
Plan
earned worldwide acclaim, including Lupin the
10.6% year on year, to ¥44.0 billion, mainly
3rd and Detective Conan. This company is
due to lackluster toy sales in Japan reflecting a
growing earnings by developing the licensing
slump in consumer spending.
business in addition to the planning and pro-
duction of quality animation. Further, we estab-
achieved operating income of ¥6.3 billion,
lished SEGA SAMMY VISUAL ENTERTAINMENT
compared with an operating loss of ¥0.9 billion
INC. (which changed its name to MARZA
for the previous fiscal year. This improvement
■ 遊技機事業
In earnings, the business segment
パチンコ・パチスロ遊技機の販売台数の増加
ANIMATION PLANET INC. on July 1, 2010) 部材調達コストの低減
was principally thanks to a 40.0% year-on-year
Insight
Establishing a CGI Animation Studio
Previously involved in the production of CGI
animation for video games, the VE R&D
Department has spun off from SEGA’s R&D
パチンコ遊技機の盤面販売比率の上昇
Division to establish MARZA ANIMATION
価格戦略の見直し
PLANET INC. as a wholly subsidiary of SEGA
as a subsidiary for the planning, production, 周辺機器事業からの撤退による営業費用の削減
reduction in R&D expenses and content proand sales of CG animation around the world.
duction expenses that resulted from narrowing
■ アミューズメント
レベニューシェアによる配分収益の好調
機器事業
CVT＊キット販売好調
down the
number of titles for Japan and im-
研究開発費・コンテンツ制作費の削減
FY 2010 Overview■ アミューズメント
SEGASAMMY
proving development efficiency.
店舗ポートフォリオの見直し
施設事業
販管費や減価償却費を中心とした営業費用の削減
■ コンシューマ事業
国内タイトル数の絞り込みによる開発の効率化
Home video game software business
研究開発費・コンテンツ制作費の削減
returns to profitability by streamlinHome Video Game Software Business
ing the number of titles
Earnings improve in Japan’s market,
For fiscal 2010, the segment saw a 7.4% year-
but struggle overseas
on-year decrease in net sales, to ¥121.5 billion.
The home video game software business sold
Within the business segment, the home video
6.53 million units of Mario & Sonic at the
game software business recorded a 5.6% year-
Olympic Winter GamesTM for the U.S. market
on-year decline in sales, to ¥77.5 billion, be-
and the European market, its mainstay title
cause it reduced titles for Japan’s market and
in fiscal 2010. In Japan, the latest edition of
postponed the launch of some titles to the
the popular Ryu-Ga-Gotoku 4: Densetsu wo
current fiscal year. Meanwhile, in the network
Tsugumono series shipped 560,000 units.
games and other business sales were down
Further, marketed as a global title, BAYONETTA
SAMMY HOLDINGS INC. As a CGI animation
film studio, MARZA ANIMATION PLANET has
set out providing “The Best Stories for Children around the World” as its management
vision. The new company will take advantage of technology, systems, and a pipeline
fostered in its years as the VE R&D Department to streamline large-scale production.
MARZA ANIMATION PLANET is committed
to delivering memorable experiences
through characters and imaginary worlds
that exploit state-of-the-art CGI technologies.
sold 1.35 million units.
© SEGA
© 2008 SSVE
Detective Conan: The Raven Chaser
© 2009 Gosho Aoyama /
DETECTIVE CONAN COMMITTEE
BAYONETTA
© SEGA
37
Consumer Business
Mario & Sonic at the Olympic Winter GamesTM
TM IOC. Copyright © 2009 International Olympic
Committee (“IOC”). All rights reserved.
SUPER MARIO characters © NINTENDO.
SONIC THE HEDGEHOG characters © SEGA.
For sales in Japan, aiming to balance
the reintroduction of BAKUGAN to Japan.
earnings size and development expenses appro-
priately, we concentrated development and sales
ness, Sammy NetWorks Co., Ltd., benefited from
Operating online and mobile content busi-
on titles likely to generate a certain level of unit
a major contribution to earnings from mainstay
sales and return. As a result, the business more
pachinko and pachislot PC online game
than halved the number of titles sold in Japan to
777Town.net. Another boost to earnings came
17 titles. Consequently, the profitability of sales
from the dramatically enhanced profitability of
in Japan improved markedly because develop-
Sammy 777 Town content for mobile phones,
ment efficiency increased and high-margin titles
which resulted from changing over to a pay-per-
accounted for a larger share of sales. Overseas,
use business model. In addition, we withdrew
however, sales struggled principally because new
from the solutions business, which was unprofit-
title sales slumped due to tough market condi-
able, and built a system that concentrates man-
tions characterized by flat consumer spending.
agement resources on core businesses. Viewing
In response to this change in overseas market
expansion of the content market for smartphones
conditions, the business closed a North American
as a good opportunity to increase points of con-
development subsidiary, Secret Level, Inc., and
tact with customers, SEGA is stepping up efforts
reorganized businesses in North America and
to cater to such growing demand by drawing on
Europe. Through this reorganization, we expect to
the high-quality assets and development capabili-
reduce the cost of sales and operating expenses
ties that it has accumulated.
roughly ¥2 billion for the current fiscal year.
The animation business’s core operating
company, TMS ENTERTAINMENT, LTD., saw pro-
Ryu ga Gotoku 4: Densetsu wo Tsugumono
© SEGA
duction revenues decline year on year due to its
SEGA TOYS transfers to new business
reduction of animated movies in accordance with
management system, Sammy NetWorks
initiatives to enhance profitability. Nevertheless,
posts record earnings
sales revenues remained firm due to higher roy-
The core operating company of the toy sales
alty revenues stemming from the popularity of
business, SEGA TOYS CO., LTD., recorded solid
BAKUGAN overseas and an increase in box-office
sales overseas. In particular, sales of BAKUGAN-
revenues due to the success of a movie-theater
related products continued to grow worldwide.
version of Detective Conan.
Meanwhile, continuing to face challenging condi-
777Town.net
© ASAO TAKAMORI · TETSUYA CHIBA / KODANSHA
© Sammy
38
tions in Japan, SEGA TOYS closed an unprofit-
able subsidiary as part of efforts to select and
Targeting lower revenues and higher
concentrate businesses and products. Also, aim-
earnings by streamlining overseas titles
ing to rightsize its workforce to suit the current
For fiscal 2011, the Consumer Business segment
level of earnings, the company introduced a
is targeting net sales of ¥100 billion, down
voluntary early retirement plan and transferred to
17.7% year on year. This decrease will mainly
a new business management system. Further,
result from the home video game software
Group companies led by SEGA TOYS established
business’ consolidation of titles for overseas
Bakugan Limited Liability Partnership (Bakugan
markets. This business segment aims to increas-
LLP), which steadily advanced preparations for
es operating income 11.1%, to ¥7.0 billion,
primarily by improving the profitability of the
through the selection and concentration of
home video game software business through
businesses and the reduction of fixed costs.
reduction of R&D expenses and content produc-
Bakugan LLP will lead a concerted effort by the
tion expenses and enhancing the profitability
Group to expand the BAKUGAN business in
of subsidiaries.
Japan. Also, we will grow sales of the 2010 U.S.
Toy of the Year Award winner Zhu Zhu Pets,
Home Video Game Software Business
for which we have obtained exclusive marketing
development efficiency by streamlining
rights in Japan.
game titles for overseas markets
Conditions in the Japanese market will likely
ness, Sammy NetWorks has its sights set on in-
remain tough. We will market 18 titles in Japan,
creasing earnings even further by introducing
approximately the same number as in the previ-
signature titles to its mainstay services 777Town.
ous fiscal year, and we hope to ship 3.38 million
net and Sammy 777 Town, extending pay-per-
units, about 440,000 fewer than in fiscal 2010.
use, and commercializing a new content service
We aim to reach this target based on such major
in earnest. SEGA will proactively provide content
titles as HATSUNE MIKU –Project DIVA– 2nd, the
for SNS and smartphones, markets that are likely
second installation of a series that has attracted
to continue expanding.
fans. Due to downturns in consumer spending,
overseas markets are also contracting. Therefore,
ENTERTAINMENT plans to increase earnings
plans call for narrowing down the number of
by expanding businesses related to BAKUGAN
titles for overseas markets from 49 for fiscal
and advancing operations for the production of
2010 to 38 titles in the current fiscal year. This
animation for pachinko and pachislot machines.
will cause a 9.36 million year-on-year decrease
Also, we will concentrate efforts on establishing
in unit sales, to 13.57 million units. While height-
new businesses engaged in such activities as
ening development efficiency, we intend to re-
brand management relating to an agreement
lease a new offering in the SONIC series as a
concluded with Japan Post on the joint owner-
major new title and bring VANQUISH to market
ship of copyrights for its Posties image characters
as a global title.
as well as licensing sales. In another effort to de-
velop a future source of earnings, the segment
Through these initiatives, for fiscal 2011 the
As for the online and mobile content busiHATSUNE MIKU – Project DIVA – 2nd
© SEGA
© Crypton Future Media, Inc.
VOCALOID is a trademark or a registered trademark of
Yamaha Corporation, Japan.
In the animation business, TMS
home video game software business is targeting
will add infant medical treatment to its business
total unit sales of 16.96 million units, a 36.6%
areas. In this initiative, we intend to roll out the
year-on-year decrease.
world’s first preparation support terminal for in-
VANQUISH
© SEGA
fant medical treatment, Smiletouch, which will
Reintroduce BAKUGAN to the Japanese
market
make effective use of our animation assets.
Zhu Zhu Pets
© 2010 Cepia LLC.
In the toy sales business, SEGA TOYS is expected
to record lower revenues due to a change in
the transaction format for BAKUGAN. However,
the company is targeting improved profitability
39
Corporate Governance
As of June 23, 2010
Directors, Corporate Auditors, and Executive Officers
Directors
Hajime Satomi
Chief Executive Officer
1980President and Representative Director of Sammy Industry Co., Ltd.
(currently Sammy Corporation)
2003Chairman and Director of Sammy NetWorks Co., Ltd. (to present)
2004Chairman and Representative Director of SEGA CORPORATION
Chairman, Representative Director, and Chief Executive Officer of
Sammy Corporation (to present)
Chairman, Representative Director, and Chief Executive Officer of
SEGA CORPORATION
Chairman of the Board and Chief Executive Officer of the
Company (to present)
2005 Chairman and Director of SEGA TOYS Co., LTD. (to present)
Chairman and Director of TMS ENTERTAINMENT, LTD. (to present)
2007President, Representative Director, Chief Executive Officer, and
Chief Operating Officer of SEGA CORPORATION
2008Chairman, Representative Director, and Chief Executive Officer of
SEGA CORPORATION (to present)
1989Entered into Sammy Industry Co., Ltd. (currently Sammy
Corporation), as General Manager of the General Affairs Division
2004 Senior Managing Director of the Company
2005 Director of Sammy Corporation
Director of Sammy NetWorks Co., Ltd.
Director of SEGA TOYS Co., LTD.
Executive Vice President and Director of the Company
2007Executive Vice President and Representative Director of the
Company (to present)
Keishi Nakayama
Executive Vice President and 2008President, Representative Director, and Chief Operating Officer of
Sammy Corporation (to present)
Representative Director
Okitane Usui
Director
Hisao Oguchi
Director and CCO
(Chief Creative Officer)
Yuji Iwanaga1
Director
40
1993Entered into Sega Enterprises, Ltd. (currently SEGA
CORPORATION)
1997 Director of SEGA CORPORATION
1999 Retired from SEGA CORPORATION
2007 Entered into SEGA CORPORATION, as Corporate Advisor
Senior Managing Director of SEGA CORPORATION
2008 Director of SEGA CORPORATION
President, Representative Director, and Chief Operating Officer of
SEGA CORPORATION (to present)
Chief Executive Officer of Sega Holdings Europe Ltd. (to present)
Chairman of Sega Holdings U.S.A., Inc. (to present)
Director of the Company (to present)
1984 Entered into Sega Enterprises, Ltd. (currently SEGA CORPORATION)
2003 President and Representative Director of SEGA CORPORATION
2004President, Representative Director, and Chief Operating Officer of
SEGA CORPORATION
Vice Chairman and Director of the Company
2005 Chief Executive Officer of Sega Holdings Europe Ltd.
2006 Chairman of Sega Holdings U.S.A., Inc.
2007Executive Vice President and Representative Director of
SEGA CORPORATION
2008 Representative Director of SEGA CORPORATION
Director of SEGA CORPORATION, Director of Sammy Corporation
Director and Chief Creative Officer of SEGA CORPORATION
Director and Chief Creative Officer of the Company (to present)
Director and Chief Creative Officer of Sammy Company
2009 Senior Managing Director of Sammy Corporation (to present)
1981 Registered with The Japan Federation of Bar Associations
1984Partner of Lillick McHose and Charles Law Office (currently
Pilsbury Winthrop Shaw Pittman LLP) (to present)
Registered with the State Bar of California
2003 Outside Director of Manufacturers Bank
2005Outside Director of JMS North America Corporation (to present)
2006 Outside Director of TAIYO YUDEN Co., Ltd. (to present)
2007 Outside Director of the Company (to present)
Takeshi Natsuno1
Director
2005 2008 2009 2010
Executive Director, General Manager
Multimedia Services Department of NTT DoCoMo, Inc.
Guest Professor, Graduate School of Media and Governance of Keio University (to present)
Outside Director of the Company (to present)
Director of PIA CORPORATION (to present)
Outside Director of transcosmos inc. (to present)
Director of Liveware Inc. (to present)
Director of NTT Resonant Inc. (to present)
Director of SBI Holdings, Inc. (to present)
Director of DWANGO Co., Ltd. (to present)
Director of DLE Inc. (to present)
Director of GREE, Inc. (to present)
Director of bitWallet, Inc (to present)
1Qualified external directors as provided in Paragraph 2, Clause 15 of the Corporate Law.
2Qualified external auditors as provided in Paragraph 2, Clause 16 of the Corporate Law.
Auditors
Toshio Hirakawa2
1994
1996
2001
2004
2005
Director of Marusan Securities Co., Ltd.
Managing Director of Marusan Securities Co., Ltd.
President and Representative Director of Marusan Finance Co., Ltd.
Standing Corporate Auditor of Sammy Corporation
(to present)
Corporate Auditor of the Company (to present)
Corporate Auditor of TMS ENTERTAINMENT, LTD.
(to present)
1984
2001
2006
2007
Entered into Sega Enterprises, Ltd. (currently SEGA CORPORATION)
General Manager of Accounting Dept. of SEGA
CORPORATION
General Manager of Finance Dept. of SEGA
CORPORATION
Standing Corporate Auditor of SEGA CORPORATION
(to present)
1978
2000
2004
2005
2006
2007
Registered with The Japan Federation of Bar Associations
Established Enomoto Law Office (to present)
Corporate Auditor of Sammy NetWorks Co., Ltd. (to present)
Corporate Auditor of SEGA CORPORATION (to present)
Substitute Corporate Auditor of the Company
Corporate Auditor of Nippon Koei Co., Ltd. (to present)
Corporate Auditor
Hisashi Miyazaki
Corporate Auditor
Mineo Enomoto2
Corporate Auditor
A Message from the Independent Director/Auditor
1990 Director of Cosmo Securities Co., Ltd.
1996 Managing Director of Cosmo Securities Co., Ltd.
1999 Managing Director of Cosmo investment management Co., Ltd.
2005 Standing Corporate Auditor of Sammy NetWorks, Co., Ltd.
2008 Substitute Corporate Auditor of the Company
2009 Corporate Auditor of Sammy NetWorks Co., Ltd. (to present)
Corporate Auditor of SEGA TOYS Co., LTD. (to present)
Standing Corporate Auditor of the Company (to present)
Tomio Kazashi 2
Standing Corporate Auditor
Further, from an objective standpoint, I believe in evaluating corporate
While exercising authority as an outside corporate auditor of SEGA SAMMY
HOLDINGS INC. appropriately, I endeavor to conduct my duties consistently
behavior rigorously to ensure it is fair, justifiable, and accountable.
in light of an awareness that the basic role of an independent director/auditor
is to monitor business management from an independent position.
companies, which conduct business activities across a wide range of areas.
In my view, an important duty of an independent director/auditor is to
SEGA SAMMY HOLDINGS is a holding company that has many operating
Each business has distinctive customer bases, regulatory conditions, and prod-
check that business management does not sacrifice medium-to-long-term
uct lifecycles. Therefore, I monitor whether the Company is deploying man-
improvement of corporate value by focusing excessively on the short-term
agement resources in a way that reflects these differences while optimizing
acquisition of earnings. Another important duty is preventing actions that incur
the Group as a whole.
risk beyond the level of risk the Company has been permitted to assume.
Also, preventing corporate misconduct is one of the basic roles of an inde-
of corporate value, I think whether or not systems are sufficiently practical is
pendent director/auditor.
more important than the extent to which a company has established systems.
SEGA SAMMY HOLDINGS has many shareholders, most of whom are
In corporate governance, which underpins the continuous advancement
I believe the Board of Directors of SEGA SAMMY HOLDINGS functions
individual shareholders with small equity holdings, known as general share-
adequately in regard to holding lively discussions and reflecting input from
holders. These general shareholders are indispensable to the Company.
outside directors and outside corporate auditors based on their expertise and
Further, the Company’s earnings are the joint earnings of shareholders.
business experience in business management decisions.
Accordingly, I always encourage corporate management in which business
management decisions give consideration to shareholders’ earnings.
development of SEGA SAMMY HOLDINGS and meet the expectations of
I monitor carefully to ensure that there are no breaches of fiduciary duty.
I intend to fulfil my duties in order to contribute to the sustained
its stakeholders.
In other words, I check that decision making on a range of business management matters is based on adequate and reliable information, that the duty of
care is fulfilled, and that the Company’s interests are not sacrificed.
Executive Officers
Hideo Yoshizawa
Koichi Fukazawa
Tetsushi Ikeda
Takatoshi Akiba
Senior Executive Officer
Senior Executive Officer
Executive Officer
Executive Officer
41
Corporate Governance System
Basic Stance on Corporate Governance
At the various meetings that they attend, outside directors and outside
The SEGA SAMMY Group regards corporate governance as the key foun-
corporate auditors provide guidance and advice based on their abundant
dation for its corporate activities. The fundamental principles of the
experience and specialized knowledge.
Group’s corporate governance policy are to enhance efficiency, secure a
sound corporate organization, and enhance transparency. This policy is
• Attendance of outside directors at meetings of the Company’s Board of
the basis for addressing such important management issues as selecting
Directors in fiscal 2010
candidates for directorships, deciding compensation for directors, imple-
Yuji Iwanaga: Attended 10 of 11 meetings (including attendance at 8 of
menting management oversight, and determining compensation for cor-
9 ordinary meetings of the Board of Directors)
porate auditors.
Takeshi Natsuno: Attended 11 of 11 meetings (including attendance at
Enhancing Efficiency: The Group will strive to maximize corporate value
9 of 9 ordinary meetings of the Board of Directors)
by establishing expeditious, appropriate decision-making processes and by
• Attendance of outside corporate auditors at meetings of the Company’s
increasing the efficiency of corporate management. We will work to return
Board of Directors in fiscal 2010
the benefits of these efforts to our shareholders and other stakeholders.
Tomio Kazashi: Attended 8 of 8 meetings (including attendance at 7 of
Securing a Sound Corporate Organization: To maximize corporate val-
7 ordinary meetings of the Board of Directors)
ue in volatile business conditions, the Group will identify and manage the
Toshio Hirakawa: Attended 11 of 11 meetings (including attendance at
range of risks that it faces. At the same time, we will secure a sound cor-
9 of 9 ordinary meetings of the Board of Directors)
porate organization through the reinforcement of compliance systems fo-
Mineo Enomoto: Attended 9 of 11 meetings (including attendance at 8
cused on strict adherence to social norms as well as laws and regulations.
of 9 ordinary meetings of the Board of Directors)
Enhancing Transparency: In light of the growing importance of disclosure
The attendance of Tomio Kazashi is for the period of service following
by companies, the Group will increase management transparency by ful-
the Ordinary General Meeting of Shareholders held in June 2009.
filling its responsibility to explain corporate actions to shareholders and
• Independent Director/Auditor
Name: Tomio Kazashi
other stakeholders and by realizing enhanced disclosure through proactive
investor relations (IR) activities.
Based on the fundamental principles of the Group’s corporate gover-
Execution and Oversight System
nance policy and pursuant to Rule 436-2 of the Securities Listing Regula-
The SEGA SAMMY Group has adopted a corporate auditor system in con-
tions of Tokyo Stock Exchange, Inc., the Company has designated Tomio
sideration of its objective of enabling directors, who have abundant knowl-
Kazashi as its independent director/auditor with an independent position
edge and experience of industry, market trends, products, merchandise,
that makes conflicts of interest with general shareholders unlikely.
and services, to make quick and optimal management decisions in a
rapidly changing management environment. At the same time, we have
Compensation of Directors
appointed outside directors and strengthened our executive officer and
Compensation of directors of SEGA SAMMY HOLDINGS for fiscal 2010
internal control systems, reinforcing our corporate governance organiza-
was as follows.
tion from the aspects of business execution and organizational oversight.
Total compensation for fiscal 2010: ¥489 million for five directors (in-
cluding ¥32 million for two outside directors)
Systems for Ensuring Business Management Objectivity
The Company has six directors, two of whom are outside directors, as well
as four corporate auditors, three of whom are outside corporate auditors.
The Company has elected outside directors and outside corporate auditors that do not have conflicts of interest with general shareholders.
42
Notes 1. The Ordinary General Meeting of Shareholders convened in June 2008 approved a compensation limit of ¥600 million for directors.
2.In addition to the abovementioned, the Ordinary General Meeting of Shareholders convened in
June 2009 approved a final payment of retirement benefits to directors and corporate auditors in
accordance with the termination of the system of retirement benefits for directors and corporate
auditors. As of the end of fiscal 2010, total final payments were ¥276 million for two directors,
to be paid to them upon retirement.
Enhancing Business Execution, Auditing, and Oversight
Group Audit Liaison Committee: The Group Audit Liaison Committee
through Collaboration among Boards and Committees
comprises standing corporate auditors from Group companies. They con-
The Board of Directors, the Board of Corporate Auditors, and six committees
vene as required to share information on such timely issues for the Com-
are tasked with further improving business execution, auditing, and oversight
pany and the Group as revisions in laws and regulations and to build
by coordinating efforts throughout the Group.
close working relationships among the standing corporate auditors.
Board of Directors: Comprising six directors, the Board of Directors con-
Auditors and Office of Corporate Auditors Liaison Committee: The
venes once a month and as required and implements responsive man-
Auditors and Office of Corporate Auditors Liaison Committee consists of
agement. Further, the Board of Directors undertakes decision making and
standing corporate auditors from the Company, SEGA, and Sammy as
reporting for certain significant management issues of Group companies.
well as members of the Company’s Office of Corporate Auditors. The
Board of Corporate Auditors: The Board of Corporate Auditors, consist-
committee meets every month with the purpose of ensuring the sound-
ing of four corporate auditors, meets once a month and as required in
ness of management by sharing information.
order to deliberate on and analyze specific issues thoroughly.
Voluntary Committees: Voluntary committees discuss and check specif-
Group Management Liaison Committee: Meeting as required, the
ic issues related to Group management that the Board of Directors refers
Group Management Liaison Committee aims to cultivate consensus in
to them and report or present the results to the Board of Directors.
the Group through information sharing and rigorous debate.
Liaison Committees: Liaison committees are bodies that discuss and
Holdings Audit Liaison Committee: The Holdings Audit Liaison Com-
check the Group’s corporate governance policies. The Group Internal
mittee consists of standing corporate auditors from the Company, SEGA,
Control Liaison Committee and the Group CSR Liaison Committee com-
and Sammy; responsible directors from accounting divisions; and repre-
prise managers responsible for internal control and CSR at the Company,
sentatives of the Company’s independent auditors, KPMG AZSA & Co. At
SEGA, and Sammy. These committees meet quarterly. Further, a Group
monthly meetings, committee members exchange opinions from their
compliance liaison meeting comprises the compliance officers of SEGA
respective standpoints and seek to enhance accounting compliance.
SAMMY HOLDINGS, SEGA, Sammy, and the Group’s listed subsidiaries
and convenes every six months.
Corporate Governance System
Election/Dismissal
General Meeting of Shareholders
Dismissal
Election/Dismissal
Reports/Proposals
Reports Reports/
Exchange of Information
Election/Dismissal
Independent
Auditors
Reports
Board of Directors
Instructions by Election/Dismissal
Representative
Execution
Reports
Director
Instructions
Internal Auditing Office
Reports
Executive Officers
Reports/
Proposals
Advance
Deliberations/
Instruction
for Examination
Audit
Board of Corporate Auditors
Audit/Exchange
of Information
Reports/
Propasals
Advice/
Voluntary Committees
Liaison Committees
Holdings Audit Liaison Committee
Subcommittees
[CSR,
Internal Control,
Compliance]
Auditors and Office of Corporate Auditors Liaison Committee
Implementation
of Policies
Instructions
Reports/
Group Audit Liaison Committee
Group Management Liaison Committee
Internal Audit/
Reports/
Advice
Office of Corporate Auditors
Reports/
Proposals/
Each Division
Notification Channel
Various Consultation Channels
Implementation
of Policies
Reports/
Proposals/
Group Companies
43
44
Basic Policies for Strengthening Internal Control Systems
the Group to make decisions swiftly and properly. At the same time, in accor-
In accordance with the Corporate Law, the Company has formulated and is
dance with the regulations of the Board of Directors and other regulations,
working to implement the following basic policies for strengthening its inter-
we have established a system to ensure appropriate and efficient perfor-
nal control systems.
mance of duties by directors through rules on authority and decision making.
(1) Systems to ensure that directors perform their duties in confor-
(5) Systems to ensure that employees perform their duties in confor-
mance with laws, regulations, and the Articles of Incorporation
mance with laws, regulations, and the Articles of Incorporation
To ensure a thorough understanding that compliance is a prerequisite to all
1) The internal control department has been given overall responsibility for
corporate activities, we have formulated the Group CSR Charter and Group
compliance for the Company and the Group. Group compliance policies
Code of Conduct, which are the foundation of our social responsibility poli-
are promoted to ensure that all employees act in compliance with laws,
cies for filling our role as a member of society, including the establishment
regulations, the Articles of Incorporation, and other internal rules as well as
of a compliance system. The President and Representative Director will re-
social norms.
peatedly take steps to convey the spirit of these policies to all officers and
2) We have established a system to enable employees to make reports if
employees. Furthermore, to ensure appropriate and sound execution of the
they become aware of any contravention of laws, regulations, the Articles of
Company’s operations overall, the Board of Directors is striving to establish
Incorporation, other internal rules, or social norms. In addition, we have es-
effective internal control systems and a system to ensure compliance by the
tablished a system to ensure that responsible personnel report any important
Company with laws, regulations, and the Articles of Incorporation from the
cases to the Board of Directors and the Board of Corporate Auditors without
perspective of further strengthening corporate governance. In addition, the
delay. Moreover, as a system to protect such whistle-blowers and to ensure
Board of Corporate Auditors is working to find and correct any problems at
appropriate handling while maintaining transparency, we have established re-
an early stage by auditing the effectiveness and functions of the internal con-
porting channels that include not only regular reporting channels but also an
trol systems and verifying them periodically.
internal department in charge of compliance and outside attorneys.
(2) Systems to store and control information on the performance of
(6) Systems to ensure proper execution of business by the corporate
duties by directors
Group, including the Company and its parent company and subsidiaries
The President and Representative Director has appointed the Director in
We have established the Group Management Liaison Committee, the Group
charge of the Administration Divisions as the person responsible for the
Audit Liaison Committee, and other committees to discuss various problems
storage and control of information on the performance of duties by direc-
involving the Group and matters involving significant risks that should be
tors. In accordance with internal rules, this information is recorded in docu-
controlled. At the same time, the Office of Corporate Auditors conducts au-
ments or electronic media and stored and controlled in easily searchable
dits from the perspectives of the Groupwide interest, and we are doing our
formats that facilitate adequate, accurate inspection by the directors and
utmost to share information within the Group and ensure appropriate busi-
corporate auditors.
ness execution.
(3) Rules and other systems concerning management of exposures
(7) Matters concerning employees appointed by request of the corpo-
to loss
rate auditors to assist the corporate auditors in the performance of
With regard to risks related to the execution of business by the Company,
their duties
each relevant division analyzes and identifies individual foreseeable risks
We have established the Office of Corporate Auditors under the direct con-
and clarifies the risk management system. In addition, the internal audit de-
trol of the Board of Corporate Auditors. Employees assigned to the Office of
partment and the internal control department audits and monitors the status
Corporate Auditors assist the corporate auditors in the performance of their
of risk management by each division and each department and periodically
duties in compliance with their directions and orders.
reports the results of audits to management decision-making, execution, and
(8) Matters concerning the independence from the directors of the
oversight bodies.
employees described in item
(4) Systems to ensure efficient performance of duties by directors
1) Employees assigned to assist the corporate auditors in the performance
To ensure efficient performance of duties by directors, we employ a system
of their duties are supervised directly by the corporate auditors and are not
of corporate auditors to enable internal officers familiar with the business of
subject to orders or supervision from the directors.
2) In regard to the employees described above, such matters as appoint-
management and takes steps to maintain and improve these systems.
ment, dismissal, transfer, evaluation, disciplinary disposition, and wage
revision require prior consent from the Board of Corporate Auditors.
fiscal 2006, ended March 31, 2006, and moved forward with the establish-
(9) Systems for ensuring directors and employees provide reports to
ment of a framework for evaluating and reporting on internal control
corporate auditors and other systems for ensuring the provision of
systems in response to the Financial Instruments and Exchange Law,
reports to corporate auditors
commonly known as J-SOX, which stipulates a system for evaluation and
1) If directors or employees become aware of any material violation of laws,
auditing standards for internal control for financial reports. Consequently,
regulations, the Articles of Incorporation, or of any misconduct with regard to
initiatives targeting reliability in financial reporting have been established,
the performance of duties, or of any fact that may cause material damage to
and internal control for the Group’s financial reports for fiscal 2010 has
the Company, they must report the situation to the Board of Corporate Audi-
been judged to be effective.
tors without delay.
2) Directors and employees must report any decisions that could have a
cial reporting and, at the same time, with consideration for efficiency and
material effect on business or the organization and the results of any internal
soundness, will work to maintain and develop its internal control systems.
audits to the Board of Corporate Auditors without delay.
(10) Other systems to ensure effective audits by corporate auditors
1) The representative directors must meet with the corporate auditors
periodically to exchange opinions on the administration of the Company,
in addition to reports on operations, and must otherwise work to foster
mutual communication.
2) The Board of Directors must ensure that corporate auditors attend business execution meetings as needed to ensure appropriate operations.
3) Whenever necessary, the Board of Corporate Auditors must be given
opportunities to receive advice on their duties by independently engaging
attorneys, certified public accountants, and other third-party advisors.
Further, the Group established the Group Internal Control Project in
In the future, the Group will continuously ensure the reliability of finan-
IR Activities
The Company works to achieve fair and timely disclosures to shareholders
and investors. Accordingly, it holds briefings for institutional investors and
analysts on full-year and interim financial results. Also, we distribute information on these briefings via the Internet. When releasing first-quarter and thirdquarter financial results, we hold telephone conferences. In addition, we
continuously take measures to further understanding of our business activities. For example, we are increasing and improving the IR-related materials
available on our web site. Moreover, the web site has a section for individual
investors that includes readily understandable explanations of the Group.
Further, the Company strives to further heighten the objectivity of its
Other Initiatives Relating to the Corporate Governance System
business management by reflecting valuable opinions and requests received
In order to increase and improve corporate governance in the Company and
from shareholders and investors in its business management.
the Group, the Company has established the Group Internal Control Liaison
Committee, the Group CSR Liaison Committee, and the Group Compliance
Our Main IR Activities in Fiscal 2010
Financial results briefings
Twice
Liaison Committee as well as specialist departments−the Group Internal
Quarterly financial results briefings (telephone conferences)
Twice
Control Office and the Group CSR Office−which collaborate and coordinate
Small-scale meetings
Twice
with each other and respond to the needs of the committees. Through these
Meetings with individuals
committees and offices, the Company deliberates and checks problems
Factory study tours
Once
Overseas conferences
Once
and progress relating to the building of internal control systems for Group
Business Report
IR page of the SEGA SAMMY HOLDINGS
web site
242 times
A financial results briefing
45
Corporate Social Responsibility
Basic Policy
By building better relationships with its stakeholders, the SEGA SAMMY
Group will achieve sound business management and meet its obligations
Group
Management
Philosophy
to society. Furthermore, we aim to create corporate value continuously
The Group’s overriding approach
to business management
Based on the concept of corporate
social responsibility, breaks down the
Group Management Philosophy as it
relates to specific stakeholders
(guidelines on the duties of employees)
and contribute to the sustained development of society.
Group CSR Charter
In order to advance corporate social responsibility (CSR) initiatives,
the SEGA SAMMY Group calls on all executives and other employees to
adhere to the Group Management Philosophy, the Group CSR Charter,
Provides a more concrete explanation
of the Group CSR Charter from a
viewpoint closer to Group employees
and their duties
(code of conduct for employees)
Group Code of Conduct
and the Group Code of Conduct and takes measures to encourage adherence throughout the Group.
The SEGA SAMMY Group CSR Charter
WITH EMPLOYEES: Our employees bring to us creativity and a spirit
WITH CUSTOMERS: We will bear in mind the current needs and inter-
of challenge. They are our most cherished assets and fuel our growth.
ests of our customers in our effort to provide entertainment filled with
We will cultivate a corporate culture which allows them to fully exploit their
dreams and excitement.
talents and enables us to grow together with our employees.
WITH BUSINESS PARTNERS: We will maintain fair and impartial rela-
WITH SOCIETY: As corporate citizens, we will contribute to society not
tionships with our suppliers and work together as partners in providing
only by prospering in business but also by proactively supporting both the
entertainment filled with dreams and excitement.
development of cultural activities, including arts and sports, and the pres-
WITH SHAREHOLDERS AND INVESTORS: We will view our business
ervation of the global environment.
with a global perspective in our efforts to ensure sustained growth and to
maximize enterprise value. Additionally, we will enhance management
transparency and meet the expectations of our shareholders and society
through fair and timely disclosure and appropriate returns of profits.
Fiscal 2010 Initiatives
Heightening Awareness of Compliance (SEGA SAMMY Group)
With a view to fostering and spreading compliance awareness, along with easy-to-carry notebooks
that we give to all employees, we distribute a pamphlet that includes the Group Management
Philosophy, the Group CSR Charter, and the Group Code of Conduct. We hope that as a result
employees will always be mindful that they are SEGA SAMMY Group employees and act accordingly as they carry out duties or visit business partners. In fiscal 2010, SEGA SAMMY established
the Group Compliance Liaison Committee, which will further strengthen initiatives across the
Group. Convened twice in fiscal 2010, the new committee exchanged information among Group
companies and prepared future polices. Going forward, the Group will raise its level of compliance even further by creating synergies among Group companies, strengthening compliance advancement systems, and monitoring these systems continuously.
46
The Group Compliance Liaison Committee
Taking Part in the Picture Books Project (SEGA SAMMY Group)
We have participated in the Shanti Volunteer Association’s Picture Books Project since 2008. This
initiative delivers Japanese children’s picture books with translations pasted over the text to Cambodia and Laos, which publish very few children’s books. In fiscal 2010, eight Group companies
participated and prepared 87 picture books. The SEGA SAMMY Group intends to encourage more
Group employees to take part in this project.
Supporting the Adopt-A-Forest Promotion Program, SEGA no Mori (SEGA)
A secretariat meeting
To support Nagano Prefecture’s Adopt-A-Forest Promotion Program, SEGA concluded a 10-year
“forest adoption” contract with the village of Minami-Aiki in Minami Saku, Nagano Prefecture, in
April 2008. The contract covers roughly 3,633 hectares of private forest. The property has been
named “SEGA no Mori,” which means SEGA’s forest. SEGA uses the forest to educate employees
about the environment. In October 2009, a third group of forest development volunteers visited
the forest. In this latest visit, SEGA employees and some volunteers from Group companies experienced forest-thinning and farming work. Consequently, the event gave employees a chance to
meet employees from other parts of the Group. In addition to continuing efforts to curb the CO 2
its operations generate, SEGA is reducing CO 2 emissions by using green power and undertaking
SEGA no Mori forest development volunteers
forestation to absorb CO 2. The company will also move forward with plans for a certain amount
of carbon offsetting.
Opening Showrooms to the Public (Sammy)
Since June 2006, we have frequently opened our headquarters showroom so that senior citizens
can enjoy playing pachinko and pachislot. In this initiative, we collaborate with the Social Welfare
Council of Toshima Ward, Tokyo, which introduces us to its welfare facilities for senior citizens.
By the end of fiscal 2010, Sammy had opened its showroom 108 times and received 591 visitors. Moreover, Sammy is preparing to introduce similar initiatives in stages through tie-ups with
local social welfare facilities at eight of its sales bases around Japan. Branches in Sendai, Sapporo,
Tokyo, and Hiroshima have already begun initiatives. As well as enabling Sammy to entertain a
wide range of age groups, by emphasizing the value of contact with local residents, such activities
will build a stronger awareness within the Group of the importance of social contributions.
One of Sammy’s showrooms opens its doors
to the public
47
Holding SEGA SAMMY Baseball Club Clinics for Children (SEGA SAMMY Group)
Aiming to help establish a vibrant, healthy society through sports, SEGA SAMMY holds baseball
clinics for children around Japan. Since 2006, SEGA SAMMY Baseball Club clinics have taught
more than 2,555 children batting, catching, and fielding. Further, the club conducts training sessions for instructors. These efforts enrich communication with local communities and support the
next generation’s development. Also, we have sponsored the Tokyo Kids Baseball Academy of
the Tokyo Shimbun and Tokyo Chunichi Sports newspapers since 2006. Players and employees
of the SEGA SAMMY Baseball Club help out at the academy. These volunteers instruct children
belonging to youth baseball teams based in Tokyo or its surrounding prefectures and help them
Players of the SEGA SAMMY Baseball Club
providing instruction enthusiastically
pick up trash from baseball grounds after events. Through baseball clinics, we continue to promote sports and initiate exchanges with society at large.
Donating Toys (SEGA SAMMY HOLDINGS, SEGA TOYS, SEGA Logistics Service)
Through a specified nonprofit organization, the Japan NPO Canter, we donate toys to three groups
that a have a particular need for them: the specified nonprofit organization Family House, the
Omocha No Toshokan Zenkoku Renrakukai (toy library nationwide liaison meeting), and the
specified nonprofit organization Niigata Saigai (disaster) Volunteer Network.
Letters of thanks from toy libraries nationwide
The SEGA SAMMY Group will maintain exchanges with various groups and take advantage of
its businesses to help solve social problems.
Organizing Concerts Performed by Affiliated Artists (Wavemaster)
Hoping to give comfort and enjoyment to many people through music, the SEGA SAMMY Group
organizes charity concerts performed by Seasons, an ensemble of musicians affiliated with the
Group. By continuing to submit proposals to welfare councils across Japan relating to concerts for
hospitals or social welfare facilities, we have built an impressive track record of visits.
Seasons perform at a charity concert
Participating in Game Day Events (SEGA)
To coincide with the week of Game Day, which is on November 23 every year, the All Nippon
Amusement Machine Operators’ Union (AOU) organizes social contribution events just prior to or
following Game Day. As a member of the AOU, SEGA actively participates in the AOU’s initiatives
to invite to amusement centers people that have few opportunities to visit them, such as those
with disabilities or children from orphanages, or to deliver games to orphanages and senior citizens’ welfare facilities.
For further details, please see the SEGA SAMMY Group
CSR Report 2010.
SEGA SAMMY Group CSR Report 2010
48
|| FINANCIAL SECTION ||
Contents
50 Management’s Discussion and Analysis
56 Consolidated Balance Sheets
58 Consolidated Statements of Operations
59 Consolidated Statements of Changes in Net Assets
61 Consolidated Statements of Cash Flows
62 Notes to Consolidated Financial Statements
94 Independent Auditors’ Report
Management’s Discussion and Analysis
MD&A
Business Conditions
Because the SEGA SAMMY Group operates businesses in a wide range of
operators facing tough business conditions have curbed capital expen-
entertainment areas, a variety of changes in outside conditions affect its
ditures and closed amusement centers. As a result, developing and
business segments.
supplying innovative amusement arcade machines that cater to diverse
customer needs is critical.
Regulatory revision is the main factor affecting the market conditions of the
Pachinko and Pachislot Machine Business segment. In recent years, the
Sluggish consumer spending is affecting the Amusement Center Opera-
July 2004 revision of regulations pertaining to the Entertainment Establish-
tions segment. Further, the number of customers visiting amusement
ments Control Law has significantly affected market conditions. Although
centers is declining as the functions of home video game consoles be-
the pachinko machine market has seen steady replacement of machines
come increasingly sophisticated and gameplay diversifies. Consequently,
with machines offering a greater variety of gameplay, an expanding market
amusement centers are closing and sales at existing amusement centers
based on low ball-rental charges has raised concern that market condi-
continue to edge down year on year.
tions, which have been comparatively favorable, will suffer a reversal and
slow down. On the other hand, the pachislot machine market, which had
been in a prolonged slump, is trending toward recovery as manufacturers
begin shipping pachislot machines with innovative gameplay.
Consumer Business
In the Consumer Business segment, the home video game software business is experiencing a slump in demand in the United States and Europe,
markets which had grown continuously. By contrast, the markets for new
content for SNS and smartphones are expanding.
The business management situation of amusement center operators is
the key factor determining the market conditions of the Amusement Ma-
Forfurther information, please see “Market Conditions of the Group’s
chine Sales Business segment. In the past several years, the market for
Business Segments” in “INFORMATION” at the beginning of this report.
amusement arcade machines has shrunk because amusement center Net Sales
Billions of yen
Fiscal 2010 Business Results Analysis
600
Statement of Operations Analysis
400
Net Sales: Net sales for fiscal 2010, ended March 31, 2010, decreased 10.4%, to ¥384.6 billion.
200
By business segment, the Company recorded year-on-year declines in net sales of 0.8% in the
Pachinko and Pachislot Machine Business segment, 27.1% in the Amusement Machine Sales Busi-
0
06
ness segment, 23.2% in the Amusement Center Operations segment, and 7.4% in the Consumer
Business segment. Overseas sales were down 14.2% year on year, to ¥79.7 billion, which represented 20.7% of net sales.
07
08
09
10
FY
Billions of yen
%
300
60
200
40
100
20
Cost of Sales: Cost of sales declined a significant 20.7% year on year, to ¥245.8 billion, due to
lower net sales, curbed R&D expenses and content production expenses in the Amusement Machine Sales Business segment and the Consumer Business segment, reduction of part procurement
costs, and an increase in pachinko board sales as a percentage of pachinko machine sales in the
pachinko machine business. The cost of sales ratio improved 8.4 percentage points, to 63.9%. As a
result, gross profit rose 16.6% year on year, to ¥138.8 billion.
0
0
06
07
08
09
10
FY
50
Billions of yen
%
0
06
07
08
09
10
FY
(Change in accounting treatment) Previously, the Company recognized production expenses for game software and content for amusement arcade machines,
whichofare
Billions
yenmainly associated with the subsidiary SEGA, as cost%
of sales when these expenses arose. (The Company recognized outsourced production work as advance payments, recognizing it as cost of sales when the Company
had received and inspected the production work.) From
300
60
the fiscal year ended March 31, 2010, however, the Company recognizes products approved for commercialization as inventories or non-current assets. For inventories, at fiscal year-ends the Company recognizes as cost of
sales an amount equivalent to the projected sales volume of products approved for commercialization net of the actual sales volume. For non-current assets, the Company recognizes as cost of sales an amount equivalent
to depreciation and amortization based on the number of years of service life.
200
40
The Company undertook this change in accounting treatment in order to reflect a reorganization that enables the Company to clarify decision-making processes at the development stage of each project and that enables
100 development system
the Company to evaluate the likelihood of achieving earnings more appropriately. This reorganization resulted from revision and strengthening of the Company’s
20
The change in accounting treatment directly links content production expenses, which have been trending upward in recent years, to earnings as well as enabling accurate presentation of income and expenses for fiscal
periods. As a result of this change in accounting treatment, for the fiscal year ended March 31, 2010, the Company recorded decreases in cost of sales and operating expenses of ¥1,643 million ($17,662,000) in the
0
Amusement Machine Sales Business segment, ¥174 million ($1,880,000) in the Amusement Center Operations segment, and ¥3,980 million ($42,782,000) in the06Consumer07
Business segment.
08
09
0
10
FY
Consequently, the operating incomes of the Amusement Machine Sales Business segment and the Consumer Business segment increased by the above amounts, and the operating loss of the Amusement Center
Operations segment decreased by the above amount.
SG&A Expenses: SG&A expenses declined 7.7% year on year, to ¥102.1 billion, thanks to efforts to
reduce expenses by withdrawing from unprofitable businesses and lower personnel expenses and
Billions of yen
%
150
30
100
20
50
10
depreciation by revising the amusement center portfolio. SG&A expenses as a percentage of net
sales edged up 0.8 percentage point, to 26.6%.
Operating Income: Operating income rose a sharp 339.0% year on year, to ¥36.7 billion, reflecting cost reductions and improved earnings from the Pachinko and Pachislot Machine Business seg-
0
0
06
ment. As a result, the operating income margin increased from the previous fiscal year’s 1.9% to
9.5%. By business segment, the Pachinko and Pachislot Machine Business segment’s operating income was up from ¥14.5 billion for the previous fiscal year to ¥29.5 billion. The Amusement Center
Operations segment achieved a major improvement in operating loss, and the Consumer Business
segment realized operating income compared with operating loss for the previous fiscal year.
07
08
09
10
FY
■ SG&A expenses (left)
SG&A ratio (right)
Operating Income (Loss)/Operating Margin
Billions of yen
%
150
30
100
20
50
10
0
0
Non-Operating Income (Expenses), Ordinary Income: Other income declined 40.4% year on
year, to ¥2.0 billion, due to decreases in gain on investments in partnership and interest on tax
refund. Other expenses decreased 45.2% year on year, to ¥2.7 billion, mainly because of lower
foreign exchange losses and the absence of loss on valuation of derivatives and loss on disposal of
–50
development work in progress, which arose in the previous fiscal year. As a result, ordinary income
■ Operating income (loss) (left)
06
to ¥3.1 billion. Extraordinary loss decreased 60.4% year on year, to ¥12.0 billion. This decline was
principally the result of a substantial year-on-year decrease in business restructuring expenses−
on the cancellation of game content development in the Consumer Business segment−and loss on
1500
–300
–150
sequence of higher earnings. Net income after minority interests was ¥20.2 billion, compared with
–300
06
■ Cash dividends
per 07
share
the previous fiscal year. Further, ROE was 8.8%, an improvement from a loss on equity of 9.5% for
the previous fiscal year.
Capital Expenditures and Depreciation and Amortization: Capital expenditures were ¥16.1 billion, a steep decline from ¥26.6 billion for the previous fiscal year. Depreciation and amortization
also decreased considerably, from ¥26.6 billion for the previous fiscal year to ¥17.1 billion. These
decreases principally stemmed from a reduction in the number of amusement centers in the
Amusement Center Operations segment and lower capital expenditures due to the limited opening
of amusement centers.
–10
FY
–1500
Income Taxes and Net Income: Income taxes rose 204.2% year on year, to ¥5.6 billion, as a con-
stock was ¥80.46 for fiscal 2010, compared with net loss per share of common stock of ¥90.83 for
10
Yen
150
300
net loss of ¥22.9 billion for the previous fiscal year. As a result, net income per share of common
09
Net Income (Loss) per Share/
Cash Dividends per Share
Yen Income (Loss) per Share/
Net
300
Cash
Dividends per Share
including impairment loss on amusement centers, loss on the closure of amusement centers, loss
withdrawal from unprofitable businesses and voluntary retirement plan expenses.
08
Operating margin (right)
was up 441.4% year on year, to ¥35.9 billion.
Extraordinary Gain and Extraordinary Loss: Extraordinary gain was down 13.1% year on year,
07
06
07
08
09
10
FY
08
09
10
FY
08
09
10
FY
08
09
10
FY
Billions of yen
Capital
Expenditures/
60
Depreciation
and Amortization
Billions of yen
60
40
40
20
20
0
06
07
■0 Capital expenditures
06 and amortization
07
■ Depreciation
R&D Expenses, Content Production
Expenses, and % of Net Sales
Billions Expenses,
of yen
R&D
Content Production
90
Expenses,
and % of Net Sales
Billions of yen
90
60
60
%
18
%
SEGA SAMMY HOLDINGS ANNUAL REPORT 2010 18
12
12
51
–300
06
07
08
09
10
FY
09
10
FY
Billions of yen
60
40
20
MD&A
0
06
07
08
R&D Expenses, Content Production Expenses*: R&D expenses and content production expenses,
included in SG&A expenses and production expenses, decreased 30.5% year on year, to ¥41.5 billion, mainly due to lower expenditures in the Consumer Business segment and the Amusement Machine Sales Business segment as well as the deferred recognition of expenses accompanying post-
R&D Expenses, Content Production
Expenses, and % of Net Sales
Billions of yen
90
%
18
60
12
30
6
ponement of certain mainstay title sales launches in the Consumer Business segment. Further, R&D
expenses as a percentage of net sales was 10.8%, down from 13.9% for the previous fiscal year.
0
Major Expenses
2009
06
Millions of yen
2010
% Change
10
0
FY
09
10
FY
161.6
160.3
08
09
■ R&D expenses, content production expenses (left)
% of net sales (right)
Advertising expenses
20,804
20,774
–0.1%
R&D expenses, content production expenses*
59,676
41,502
–30.5%
26,644
17,175
–35.5%
500
26,610
16,164
–39.3%
400
* From fiscal 2010, in order to directly link content production expenses, which have been trending upward in recent years, to earnings and
enable appropriate presentation of income and expenses for fiscal periods, the Company changed its accounting policy for the treatment of
cost of sales from recognition when production expenses arise to recognition at time of sale.
07
Net Sales by Segment
Billions of yen
300
200
100
0
Business Segment Analysis
Pachinko and Pachislot Machine Business: The Pachinko and Pachislot Machine Business seg-
■ Pachinko and Pachislot Business
■ Amusement Machine Business
61.9
45.1
ment recorded a 0.8% year-on-year decrease in net sales, to ¥160.3 billion, and a 103.1% increase
71.3
54.7
in operating income, to ¥29.5 billion. In the pachinko machine business, the profit margin improved
131.3
121.5
■ Others
2.9
2.8
because higher pachinko board sales as a percentage of pachinko machine sales and reduction of
part procurement costs offset a year-on-year decline in unit sales. Meanwhile, in the pachislot machine business, unit sales increased year on year and the business posted a 53.0% year-on-year rise
in net sales. The operating income margin was 18.4%, a significant improvement from 9.0% for the
previous fiscal year.
Operating Income (Loss) by Segment
Billions of yen
50
40
30
20
10
Amusement Machine Sales Business: The Amusement Machine Sales Business segment saw net
sales decrease 27.1% year on year, to ¥45.1 billion. Operating income was up 3.0% year on year, to ¥7.0 billion. The profit margin improved thanks to reductions in R&D expenses and content pro-
–20
■ Pachinko and Pachislot Business
09
10
14.5
29.5
duction expenses as well as favorable utilization of mainstay titles sold based on a revenue-sharing
■ Amusement Machine Business
6.8
7.0
–7.5
–1.3
business model, which counteracted lower revenues due to the comparative absence of the previ-
–0.9
6.3
ous fiscal year’s sales launches of major titles. The operating income margin improved year on year
■ Corporate and eliminations
from 11.1% to 15.7%.
Amusement Center Operations: The Amusement Center Operations segment posted a 23.2%
year-on-year decline in net sales, to ¥54.7 billion. Operating loss contracted from the previous fiscal year’s ¥7.5 billion to ¥1.3 billion. In Japan, the business segment continued closing or selling of
amusement centers with inadequate profitability or potential. Also, in overseas amusement center
operations the business segment closed eight amusement centers in North America with a view to
improving profitability.
52
0
–10
■ Others
0.3
0.3
–4.9
–5.2
FY
Consumer Business: The Consumer Business segment’s net sales were down 7.4% year on year,
to ¥121.5 billion. However, the business segment posted operating income of ¥6.3 billion, com-
Total Assets
Billions of yen
600
pared with the previous fiscal year’s operating loss of ¥0.9 billion. In the home video game software
business, sales in Japan were solid overall, but new title sales were lackluster overseas. In the toy
sales business, sales trends were steady overseas, while sales were sluggish in Japan. In the content
400
200
for PCs and mobile phones business and the animation business earnings were firm on the whole.
0
06
07
08
09
10
FYE
07
08
09
10
FYE
07
08
09
10
FY
Balance Sheet Analysis
Total Assets: Total assets at the March 31, 2010 fiscal year-end stood at ¥423.1 billion, down ¥0.8
Current Ratio
billion from the previous fiscal year-end. This decrease was attributable to a ¥12.8 billion decline in
400
total non-current assets, due to impairment of property, plant and equipment and a decrease in lease
%
300
deposits, which cancelled the effect of a ¥12.0 billion increase in total current assets, resulting from
higher marketable securities due to purchases of negotiable certificates of deposit.
200
100
Total Current Assets and Total Current Liabilities: Total current assets at fiscal year-end amount-
0
06
ed to ¥298.7 billion, up ¥12.0 billion from the previous fiscal year-end. This increase primarily
stemmed from a significant rise in marketable securities, offsetting a decrease in notes and accounts
receivable−trade. Total current liabilities declined ¥4.4 billion from the previous fiscal year-end, ROE/ROA*
to ¥92.8 billion. This decline mainly reflected decreases in notes and accounts payable−trade and 30
accrued expenses, which absorbed an increase in the current portion of bonds. As a result, the
15
%
Company maintained a high level of liquidity, with a current ratio of 321.8%, up 26.8 percentage
points from 295.0% at the previous fiscal year-end.
Total Property, Plant and Equipment: Total property, plant and equipment at fiscal year-end stood
0
–15
–30
06
at ¥59.0 billion, a decline of ¥6.1 billion from the previous fiscal year-end that resulted from decreases in buildings and structures and amusement machines and facilities due to impairment.
ROE
ROA
* ROA = Ordinary income ÷ Total assets
Total Investments and Other Assets: Total investments and other assets were down ¥6.8 billion
from the previous fiscal year-end, to ¥52.0 billion, due to lower lease and guarantee deposits.
Total Non-Current Liabilities: Total non-current liabilities at fiscal year-end totaled ¥73.5 billion, a
decline of ¥10.6 billion from the previous fiscal year-end. This contraction primarily stemmed from Total Net Assets Ratio
%
70
60
a ¥11.9 billion decrease in long-term debt from the previous fiscal year-end, to ¥47.6 billion.
50
Total Net Assets: Total net assets stood at ¥256.7 billion at fiscal year-end, up ¥14.2 billion from
the previous fiscal year-end. This increase mainly reflected a ¥12.7 billion rise in retained earnings.
0
06
07
08
09
10
FYE
As a result of the increase in total net assets, the equity ratio at fiscal year-end was 55.8%, an improvement of 3.4 percentage points from the previous fiscal year-end. Further, net assets per share
amounted to ¥937.80 at fiscal year-end, up ¥55.33 from the previous fiscal year-end.
Cash Flows
Billions of yen
90
60
30
0
–30
–60
Total Net Assets Ratio
%
70
60
50
MD&A
0
06
07
08
09
10
FYE
Cash Flows Analysis
Net Cash Provided by Operating Activities: Net cash provided by operating activities increased
Cash Flows
¥22.8 billion year on year, to ¥54.9 billion. This was primarily due to income before income taxes
90
and minority interests of ¥27.0 billion and an ¥11.4 billion decrease in notes and accounts receiv-
60
Billions of yen
30
able−trade, which offset a ¥13.0 billion decrease in notes and accounts payable−trade.
Net Cash Used in Investing Activities: Net cash used in investing activities was ¥7.6 billion, compared with net cash provided by investing activities of ¥0.9 billion for the previous fiscal year. This
0
–30
–60
–90
was because proceeds from sales of property, plant and equipment decreased from the previous
fiscal year’s ¥21.4 billion to ¥0.7 billion, counteracting a decline in payment for purchase of property, plant and equipment from the previous fiscal year’s ¥14.4 billion to ¥8.6 billion.
06
07
08
09
10
FY
■ Net cash provided by operating activities
■ Net cash used in (provided by) investing activities
■ Free cash flows
Net Cash Used in Financing Activities: Net cash used in financing activities decreased from ¥7.6
billion for the previous fiscal year to ¥3.4 billion. This was because proceeds from issuance of bonds
of ¥10.7 billion partially offset cash dividends paid (including cash dividends paid to minority Shareholders) of ¥7.8 billion and payment for redemption of corporate bond of ¥5.0 billion.
As a result of the above, cash and cash equivalents at end of year amounted to ¥167.0 billion,
up ¥43.6 billion from the previous fiscal year-end.
18
12
6
Operational Risks
0
Risks that could affect the performance or operations of the SEGA Commission rules (regulations for the verification of licenses, formats,
SAMMY Group are given below. Further, these risks are not a compre-
and other aspects of pachislot and pachinko machines), which are based
hensive list of the operational risks faced by the Group. However, based
on the amended Entertainment Establishments Control Law of Japan en-
on an awareness of the following risks, the Group implements measures
acted on February 13, 1985.
to prevent the occurrence of incidents arising from those risks and to
Also, in July 2004 revisions were enacted to regulations pertaining
respond to such incidents in the event of their occurrence. In addition,
to the Entertainment Establishments Control Law that mainly curb the
forward-looking statements in the following text are the judgments of volatility characteristics and prevent the improper use of pachislot and
the Group as of March 31, 2010.
pachinko machines. Such regulatory revisions, the progress of new-ma-
Statutory Regulations Affecting the Pachislot and Pachinko Machine
Business: Among the Group’s mainstay operations, the Pachislot and
Pachinko Machine Business accounts for a significant portion of net sales
and income. In particular, this segment generates the greater part of the
54
chine development, the requirements of format examinations and official
licenses, product malfunctions, user preferences, and the sales trends
of competitors’ products could have a significant impact on the Group’s
performance or operations.
Group’s total operating income. Further, the segment’s sales are substan-
Shortness of Product Life Cycles: Due to the short time required for
tially influenced by user preferences. As a result, the segment tends to
the production of pachislot and pachinko machines, the Group usually
rely on the sales of specific machine models. In addition, products sold
produces machines in response to order trends. Because the market-
must conform to the technical specifications stipulated by Public Safety
ing period is generally short, product shipments are concentrated in the
initial period after product launches. Accordingly, the Group procures
performance or operations. Further, the Group could be affected by de-
certain raw materials in advance. However, the Group may not be able to
terioration in the international geopolitical situation related to such factors
procure sufficient raw materials for production in response to large order
as overseas wars, conflicts, and terrorist incidents.
volumes in the initial period after product launches.
Comparatively, the time required for the production of amusement
machines is long. Consequently, the Group produces those machines
based on demand estimates. However, demand for products could
change due to shifts in user preferences.
Home video game software is susceptible to changes in seasonal demand, which focuses on such periods as the year-end shopping season.
Adoption of Asset-Impairment Accounting: In the fiscal year ended
March 31, 2006, the Company adopted asset-impairment accounting.
Depending on shifts in business conditions and future cash flows, the
Company may be unable to recoup the value of certain investments and
would be required to record a loss. If such a case were to occur, it could
have a material adverse effect on the Company’s operating results.
If the Group is unable to supply new products during such selling peri-
Investment Securities: The Group holds investment securities for such
ods, surplus inventory could result. To mitigate risks associated with such
purposes as building business relationships and earning an investment
inventories, the Group takes measures that include the use of common
return. In the fiscal year under review, due to write-downs of securities,
components, the shortening of lead times for component procurement,
a substantial loss on revaluation of investment securities was recorded.
and the strengthening of inventory asset management. However, losses
The valuation of investment securities is made in accordance with such
stemming from the disposal of inventory assets could result due to sales
factors as stock market trends and the financial positions and results of
results that fall short of projections.
operations of the issuers. Accordingly, in the future, in the event that im-
SBUs Recording Operating Losses: In regard to the operating results of
the Group’s SBUs, the Amusement Center Operations segment and the
Consumer Business segment recorded operating losses for the second
pairment processing is implemented due to declines in market prices or
declines in effective prices, the Company’s operating results could be affected by the recording of a loss on reevaluation of investment securities.
consecutive year. The Amusement Center Operations segment is taking
Management of Personal Information: The Group holds personal in-
steps to improve profitability, such as closing or selling centers with low
formation relating to the users of its products and services due to such
profitability or potential and improving center operational capabilities.
activities as the operation of membership-based web sites. In light of
However, these operations are significantly influenced by trends in con-
the enactment of the Act for Protection of Computer Processed Personal
sumer spending, and due to such factors as the status of the introduction
Data Held by Administrative Organs, the Group is strengthening the rigor
of amusement machines that meet diverse user needs, some time could
of its personal information management. However, in the unlikely event
be required for revenues/profits to improve.
of a leakage of personal information or the misuse of such personal
The Consumer Business segment faces a continual need for substan-
information, the resulting loss of trust or lawsuits filed against the Group
tial up-front production expenses and advertising expenses, and accord-
could affect its performance or operations.
ing to the unit sales of home video game software, etc., some time could
be required for revenues/profits to improve.
Lawsuits: The Group implements measures to minimize the risk of having claims for damages and other lawsuits filed against the Group by
Entry into Overseas Markets: The Group conducts operations in over-
strengthening its compliance systems and by exercising sufficient care to
seas markets, including markets in North America, Europe, and Asia,
avoid the infringement of the intellectual property of third parties. How-
including China. The Group plans to increase sales in overseas markets
ever, lawsuits could be filed against the Group claiming that products
centered on the Amusement Machine Sales Business, Amusement
manufactured and sold by the Group infringe upon certain rights.
Center Operations, and the Consumer Business segments. As a result,
fluctuation in foreign currency exchange rates could affect the Group’s
DETERMINATION
Consolidated Balance Sheets
As of March 31, 2010 and 2009
Thousands of
U.S. dollars (Note 1)
Millions of yen
Assets
2010
2009
2010
¥101,324
¥106,436
$1,088,927
67,027
80,468
720,340
Current assets
Cash and deposits (Note 4 (1))
Notes and accounts receivable–trade (Note 4 (1))
Allowance for doubtful accounts
(712)
(698)
(7,660)
Short-term investment securities
73,400
26,798
788,824
Merchandise and finished goods
6,500
7,656
69,857
Work in process
7,914
2,914
85,055
22,358
30,971
240,282
Income taxes receivable
2,534
7,013
27,238
Deferred tax assets
3,219
3,382
34,600
Raw materials and supplies
Other
Total current assets
15,163
21,795
162,958
298,730
286,740
3,210,425
Non-current assets
Property, plant and equipment
Buildings and structures (Note 4 (1))
Accumulated depreciation
Buildings and structures, net
Amusement machines and facilities
Amusement machines and facilities, net
Land (Note 4 (1) and (4))
Construction in progress
Other
Other, net
Total property, plant and equipment
49,461
54,398
531,558
(26,974)
(28,748)
(289,889)
22,487
25,649
241,669
54,832
64,985
589,279
(48,495)
(54,040)
(521,181)
6,336
10,944
68,097
22,632
22,590
243,228
171
494
1,843
42,035
39,635
451,754
(34,632)
(34,198)
(372,194)
7,403
5,436
79,559
59,030
65,116
634,399
6,767
6,949
72,729
Intangible assets
Goodwill
Other
Total intangible assets
6,592
6,292
70,852
13,360
13,242
143,582
28,605
27,732
307,418
Investments and other assets
Investment securities (Note 4 (2))
Long-term loans receivable
Lease and guarantee deposits
Deferred tax assets
Other
Total investments and other assets
Total non-current assets
Total assets
See accompanying notes.
56
1,638
2,715
17,604
13,493
18,721
145,016
3,871
6,470
41,605
7,593
7,559
81,609
(3,162)
(4,360)
(33,981)
52,040
58,838
559,272
124,431
137,197
1,337,254
¥423,161
¥423,938
$4,547,680
Thousands of
Millions of yen
Liabilities
2010
2009
2010
¥ 37,387
¥ 51,298
$ 401,803
3,489
5,467
37,501
20,600
3,294
221,391
2,449
3,131
26,319
16,528
22,464
177,634
2,539
2,295
27,288
656
473
7,051
Current liabilities
Notes and accounts payable–trade (Note 4 (1))
Short-term loans payable (Note 4 (1))
Current portion of corporate bonds
Income taxes payable
Accrued expenses (Note 4 (1))
Provision for bonuses
Provision for directors’ bonuses
Provision for point card certificates
Other
Total current liabilities
161
136
1,738
9,004
8,631
96,770
92,817
97,194
997,499
41,501
52,834
446,010
Non-current liabilities
Corporate bonds payable
Long-term loans payable (Note 4 (1))
Provision for retirement benefits
6,173
6,740
66,346
12,218
10,873
131,313
11,783
1,096
2,152
Deferred tax liabilities
399
233
4,289
Deferred tax liabilities for revaluation of land
960
960
10,325
Other
11,223
10,415
120,619
Total non-current liabilities
73,573
84,211
790,688
166,390
181,405
1,788,188
Provision for directors’ retirement benefits
Total liabilities
NET ASSETS
Shareholders’ equity
Common stock
29,953
29,953
321,903
Capital surplus
171,080
171,082
1,838,587
Retained earnings
132,128
119,417
1,419,975
Treasury stock
(73,694)
(73,685)
Total shareholders’ equity
259,468
246,767
(791,986)
2,788,479
Valuation and translation adjustments
Valuation difference on available-for-sale securities
Deferred gains/(losses) on hedges
346
24
(1,619)
–
3,721
259
(5,966)
(5,966)
(64,117)
Foreign currency translation adjustment
(17,626)
(16,865)
(189,429)
Total valuation and translation adjustments
(23,222)
(24,451)
(249,566)
1,188
1,222
12,777
Revaluation reserve for land (Note 4 (4))
Subscription rights to shares
Minority interests
Total net assets
Total liabilities and net assets
19,335
18,994
207,801
256,770
242,532
2,759,492
¥423,161
¥423,938
$4,547,680
57
DETERMINATION
Consolidated Statements of Operations
Years ended March 31, 2010 and 2009
Thousands of
Millions of yen
Net sales
Cost of sales (Note 5 (1) and (2))
Gross profit
Selling, general and administrative expenses (Note 5 (2))
Operating income
Other income/(expenses):
Interest income
Dividends income
Equity in earnings of affiliates
Gain on investments in partnership
Income from operation of lease asset
Gain on valuation of derivatives
Interest on tax refund
Interest expenses
Equity in losses of affiliates
Sales discounts
Commission fee
Provision of allowance for doubtful accounts
Loss on investments in partnership
Foreign exchange losses
Penalty payment for cancellation of game center lease agreement
Loss on valuation of derivatives
Loss on disposal of development work in progress
Gain on sales of non-current assets
Reversal of allowance for doubtful accounts
Gain on sales of shares in subsidiaries and affiliates
Gain on sales of investment securities
Gain on change in equity
Gain on liquidation of subsidiaries and affiliates
Reversal of recovery costs of video game arcades
Settlement money for the cancellation of the stock transfer contract
Reversal of cost of voluntary recall for the products
Gain on outlawed debt (Note 5 (3))
Gain on compensation payment
Loss on retirement of non-current assets
Loss on sales of non-current assets
Impairment loss (Note 5 (5))
Loss on valuation of investment securities
Amortization of goodwill
Premium allowance of retirement
Loss on closing of stores (Note 5 (4))
Loss on cancellation of game contents under development
Loss on business withdrawal
Loss on litigation
Loss on sales of shares in subsidiaries and affiliates
Loss on liquidation of subsidiaries
Other–net
Subtotal
Income/(loss) before income taxes and minority interests
Income taxes–current
Income taxes–deferred
Refund of income taxes
Income taxes (Note 14 (2))
Minority interests in net income/(loss) of consolidated subsidiaries
Net income/(loss)
58
2010
2009
2010
¥384,679
245,811
138,867
102,154
36,712
¥429,194
310,101
119,092
110,728
8,363
$4,134,116
2,641,719
1,492,397
1,097,846
394,550
511
454
37
114
188
46
–
(782)
–
(21)
(74)
(2)
(235)
(265)
(477)
–
–
528
166
29
258
20
–
1,043
–
–
377
427
(497)
(121)
(3,857)
(2,465)
–
(184)
(844)
–
–
(371)
(653)
(1,682)
(1,282)
(9,615)
27,097
3,067
2,559
–
5,627
1,200
¥ 20,269
681
225
–
633
281
–
517
(900)
(191)
(93)
(338)
(65)
(145)
(1,060)
–
(511)
(789)
580
61
466
3
2
94
583
240
279
833
–
(783)
(41)
(6,465)
(4,304)
(2,434)
(4,423)
(2,994)
(3,465)
(2,066)
–
–
–
(2,749)
(28,340)
(19,976)
2,904
(186)
(867)
1,850
1,055
¥ (22,882)
5,495
4,885
407
1,230
2,022
504
–
(8,413)
–
(231)
(802)
(30)
(2,527)
(2,848)
(5,136)
–
–
5,679
1,791
318
2,773
224
–
11,219
–
–
4,060
4,596
(5,343)
(1,302)
(41,456)
(26,493)
–
(1,986)
(9,076)
–
–
(3,991)
(7,027)
(18,085)
(13,786)
(103,332)
291,218
32,969
27,510
–
60,480
12,905
$ 217,832
Consolidated Statements of Changes in Net Assets
Thousands of
Millions of yen
2010
2009
2010
¥ 29,953
¥ 29,953
$ 321,903
–
–
–
29,953
29,953
321,903
171,082
171,092
1,838,610
Shareholders’ equity
Common stock
Balance at end of previous fiscal year
Changes in items during the period
Total changes in items during the period
Balance at end of current fiscal year
Capital surplus
Disposal of treasury stock
(2)
(2)
(10)
(10)
(23)
(23)
171,080
171,082
1,838,587
119,417
150,888
1,283,364
Retained earnings
Dividends from surplus
(7,557)
(7,558)
(81,221)
Net income/(loss)
20,269
(22,882)
217,832
–
Change of scope of consolidation
–
(16)
Reversal of revaluation reserve for land
–
(1,014)
–
12,711
(31,471)
136,610
132,128
119,417
(73,685)
(73,680)
(791,890)
Purchase of treasury stock
(12)
(21)
(138)
3
16
41
1,419,975
Treasury stock
(8)
(4)
(96)
(73,694)
(73,685)
(791,986)
246,767
278,253
Total shareholders’ equity
2,651,988
(7,557)
(7,558)
(81,221)
Net income/(loss)
20,269
(22,882)
217,832
(12)
(21)
(138)
1
6
18
–
(16)
–
–
(1,014)
–
12,700
(31,485)
136,491
259,468
246,767
2,788,479
Valuation and translation adjustments
(1,619)
597
(17,407)
Net changes in items other than shareholders’ equity
1,966
(2,217)
21,128
1,966
(2,217)
21,128
346
(1,619)
3,721
59
DETERMINATION
Thousands of
Millions of yen
2010
2009
2010
Deferred gains/(losses) on hedges
–
(2)
24
2
259
24
2
259
24
–
259
–
Revaluation reserve for land
(5,966)
(6,980)
(64,117)
–
1,014
–
1,014
–
–
(5,966)
(5,966)
(64,117)
(16,865)
(12,347)
(181,252)
(760)
(4,517)
(8,176)
(760)
(4,517)
(8,176)
(17,626)
(16,865)
(189,429)
(24,451)
(18,733)
(262,777)
Foreign currency translation adjustment
Total valuation and translation adjustments
–
1,229
1,014
(6,732)
–
13,211
1,229
(5,717)
13,211
(23,222)
(24,451)
(249,566)
1,222
1,070
13,137
Subscription rights to shares
(33)
152
(33)
152
(360)
(360)
1,188
1,222
12,777
18,994
21,038
204,131
Minority interests
341
(2,043)
341
(2,043)
3,669
3,669
19,335
18,994
207,801
242,532
281,627
2,606,480
Net assets
(7,557)
(7,558)
(81,221)
Net income/(loss)
20,269
(22,882)
217,832
(12)
(21)
(138)
1
6
18
–
(16)
–
–
–
60
1,537
14,237
¥256,770
(8,623)
(39,094)
¥242,532
–
16,520
153,011
$2,759,492
Consolidated Statements of Cash Flows
Thousands of
Millions of yen
2010
Cash flows from operating activities:
Income/(loss) before income taxes and minority interests
Impairment loss
Transfer of amusement center operation equipment
Transfer of pachislot and pachinko rental equipment
Loss/(gain) on sales of non-current assets
Loss on retirement of non-current assets
Loss/(gain) on sales of shares in subsidiaries and affiliates
Loss on liquidation of subsidiaries
Loss/(gain) on sales of investment securities
Loss/(gain) on valuation of investment securities
Loss/(gain) on investments in partnership
Amortization of goodwill
Increase/(decrease) in allowance for doubtful accounts
Increase/(decrease) in provision for directors’ bonuses
Increase/(decrease) in provision for point card certificates
Increase/(decrease) in provision for retirement benefits
Increase/(decrease) in provision for directors’ retirement benefits
Increase/(decrease) in provision for bonuses
Interest and dividends income
Interest expenses
Foreign exchange losses/(gains)
Equity in (earnings)/losses of affiliates
Loss/(gain) on change in equity
Decrease/(increase) in notes and accounts receivable–trade
Decrease/(increase) in inventories
Increase/(decrease) in notes and accounts payable–trade
Increase/(decrease) in guarantee deposits received
Other, net
Subtotal
Interest and dividends income received
Interest expenses paid
Income taxes paid
Income taxes refund
Net cash provided by operating activities
Cash flows from investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of short-term investment securities
Proceeds from redemption of securities
Purchase of trust beneficiary right
Proceeds from sales of trust beneficiary right
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Payments for investment in partnerships
Proceeds from distribution of investment in partnerships
Proceeds from purchase of investments in subsidiaries resulting in change in scope of consolidation
Payments for sales of investments in subsidiaries resulting in change in scope of consolidation
Purchase of shares in subsidiaries and affiliates
Payments of loans receivable
Repayment of loans receivable
Payments for lease deposits
Repayment of lease deposits
Proceeds from transfer of business
Other, net
Net cash (used in)/provided by investing activities
Cash flows from financing activities:
Net increase/(decrease) in short-term loans payable
Increase in long-term loans payable
Repayment of long-term loans payable
Proceeds from issuance of bonds
Redemption of corporate bond
Proceeds from share issue to minority shareholders
Cash dividends paid
Cash dividends paid to minority shareholders
Other, net
Net cash used in financing activities
Exchange difference on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents from newly consolidated subsidiary
Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation
Cash and cash equivalents at end of period (Note 7)
2009
2010
¥ 27,097
17,175
3,857
(4,344)
(12)
(407)
497
624
1,682
(222)
2,465
120
1,004
(156)
178
24
1,344
(1,055)
265
(965)
782
2
(37)
(20)
11,493
2,862
(13,061)
(751)
3,925
54,370
843
(753)
(16,572)
17,110
54,998
¥ (19,976)
26,644
6,465
(6,146)
(59)
(538)
783
(466)
–
(3)
4,304
(487)
4,144
(2,670)
382
7
1,659
88
(197)
(907)
900
870
191
(2)
(13,641)
9,086
13,278
(405)
8,713
32,019
1,008
(916)
(13,147)
13,236
32,199
$ 291,218
184,584
41,456
(46,692)
(134)
(4,376)
5,343
6,709
18,085
(2,389)
26,493
1,297
10,792
(1,680)
1,922
267
14,448
(11,344)
2,856
(10,380)
8,413
29
(407)
(224)
123,516
30,768
(140,365)
(8,072)
42,183
584,318
9,066
(8,101)
(178,101)
183,880
591,062
(1,720)
4,169
(5,395)
4,000
(6,163)
5,185
(8,608)
758
(2,042)
8
(3,323)
1,874
–
(12)
564
219
(220)
(996)
(1,178)
535
(381)
2,845
2,018
222
(7,640)
(5,511)
2,834
(1,099)
1,800
(5,810)
6,271
(14,440)
21,497
(3,143)
109
(2,258)
52
2,505
(800)
1,201
–
(4,192)
(800)
(2,657)
2,996
(948)
3,578
–
(246)
936
(18,484)
44,807
(57,979)
42,987
(66,238)
55,732
(92,512)
8,154
(21,954)
92
(35,716)
20,141
–
(134)
6,063
2,358
(2,368)
(10,709)
(12,664)
5,755
(4,103)
30,578
21,690
2,395
(82,108)
(2,503)
1,120
(1,211)
10,783
(5,027)
–
(7,571)
(305)
(12)
1,327
(3,401)
(342)
43,614
123,385
–
–
¥167,000
(21,579)
1,050
(613)
30,462
(6,216)
11
(7,579)
(2,384)
(21)
(783)
(7,653)
(2,081)
23,401
99,975
9
(0)
¥123,385
(26,909)
12,036
(13,022)
115,890
(54,027)
–
(81,367)
(3,282)
(138)
14,270
(36,550)
(3,682)
468,721
1,326,017
–
–
$1,794,738
61
DETERMINATION
Notes to Consolidated Financial Statements
NOTE 1
substantial ownership of majority voting rights or existence of certain
Basis of Presenting Consolidated Financial Statements
conditions. All significant inter-company balances, transactions and
The accompanying consolidated financial statements of SEGA SAMMY
unrealized profits have been eliminated. The number of consolidated
HOLDINGS INC. (the “Company”) and its consolidated subsidiaries have
subsidiaries is 65 and 68 in 2010 and 2009, respectively.
been prepared in accordance with the provisions set forth in the
Japanese Financial Instruments and Exchange Law and its related
became the Company’s consolidated subsidiaries; SEGA SAMMY VISUAL
accounting regulations, and in conformity with accounting principles
ENTERTAINMENT INC., because of incorporation-type company splits,
generally accepted in Japan (“Japanese GAAP”), which are different in
GINZA CORPORATION, because of the Company’s acquisition of the
certain respects as to application and disclosure requirements from
shareholdings; Bakugan Limited Liability Partnership and two other
International Financial Reporting Standards.
companies, which were newly established by the Company.
The accounts of the Company’s overseas subsidiaries are based on
From the year ended March 31, 2010, the following companies
From the year ended March 31, 2010, the following companies
their accounting records maintained in conformity with generally
were excluded from the scope of consolidation: Sammy Systems Co.,
accepted accounting principles prevailing in the respective countries of
Ltd. and Media-Trust Co., Ltd., because of the sale of the group
domicile. However, necessary adjustments are made upon consolidation
companies’ shareholdings, Sammy Europe Limited, Sega Amusements
for 2010 and 2009. The accompanying consolidated financial
Singapore Pte. Ltd. and three other companies, due to corporate
statements have been restructured and translated into English (with
liquidation, and Sammy Rental Service Co., Ltd., due to merger with a
certain expanded disclosure) from the consolidated financial statements
consolidated subsidiary.
of the Company prepared in accordance with Japanese GAAP and filed
with the appropriate Local Finance Bureau of the Ministry of Finance as
and 2009, respectively.
required by the Financial Instruments and Exchange Law. Certain
supplementary information included in the statutory Japanese language
SEGA (Shanghai) Software Co., Ltd. etc.
consolidated financial statements is not presented in the accompanying
consolidated financial statements.
consolidation because the combined amounts in assets, net sales, net
income, and retained earnings applicable to the equity interest of the
In preparing the accompanying consolidated financial statements,
certain reclassifications have been made in order to present them in a
The number of non-consolidated subsidiaries is 14 and 12 in 2010
Main non-consolidated subsidiaries: United Source International Ltd.,
All non-consolidated subsidiaries are excluded from the scope of
Company are not material.
form which is more familiar to readers outside Japan. Certain
reclassifications have been made to the 2009 consolidated financial
(2) Equity method
statements to conform to the classifications used in 2010. These
Investments in affiliated companies over which the Company has the
changes had no impact on previously reported results of operations or
ability to exercise significant influence over their operation and financial
shareholders’ equity.
policies are accounted for by the equity method. The number of
companies accounted for under the equity method is 10 both in 2010
The translation of the Japanese yen amounts into U.S. dollars is
rounded down to the nearest unit amount, and is included solely for the
and 2009.
convenience of readers outside Japan, using the prevailing exchange rate
at March 31, 2010, which was ¥93.05 to U.S. $1. The convenience
Middleware Co., Ltd., etc.
translations should not be construed as representations that the
Japanese yen amounts have been, could have been or could in the
an equity-method affiliate from the year ended March 31, 2010.
future be converted into U.S. dollars at this or any other rate of
exchange.
Inc. was excluded from an equity-method affiliate effective from the year
Main equity-method affiliates: Nissho Inter Life Co., Ltd., CRI
As a result of the Company’s share acquisition, ELTEX, Inc. became
Also, as a result of the sale of the Company’s shareholding, mPoria
ended March 31, 2010.
62
NOTE 2
Summary of Significant Accounting Policies
companies which are not applied to equity method is 19 and 18 in
(1) Principles of consolidation
2010 and 2009, respectively.
The consolidated financial statements include the accounts of the
Company and its significant subsidiaries, which are controlled through
by the equity method:
The number of non-consolidated subsidiaries and affiliated
Main non-consolidated subsidiaries and affiliates not accounted for
Liverpool Co., Ltd., Micott & Basara Inc., etc.
(4) Depreciation and amortization for important assets
The equity method was not applied to non-consolidated subsidiaries
a. Property, plant and equipment (excluding lease assets):
and affiliates because the combined amounts of these companies in net
Depreciation is computed primarily using the declining-balance method.
income and retained earnings applicable to the equity interest of the
Company are not material.
April 1, 1998 are depreciated using the straight-line method.
However, buildings (excluding attached equipment) acquired after
Range of useful life for the assets is as follows:
(3) Valuation and accounting treatment for important assets
Buildings and structures: 2-50 years
a. Held-to-maturity debt securities are stated at amortized cost (the
Amusement game machines: 2-5 years
straight-line method).
Regarding buildings and structures built on land leased under term
b. Other marketable securities
leasehold contracts, the straight-line method is used with the remaining
Securities with fair market value are stated at fair market value. The
lease period as the useful life and the residual value as zero.
difference between acquisition cost and market value is accounted for as
net unrealized holding gains or losses on securities in net assets, with
March 31, 2007, the residual values are depreciated in accordance with
cost of sales determined by the moving-average method.
the revised Corporation Tax Law. When the depreciated value of a
c. Other securities without quoted market prices are carried at cost,
property, plant and equipment reaches residual values in a certain fiscal
which is determined by the moving-average method.
year, the residual values of the asset is depreciated in an equal amount
The net amount of equity included in the Company’s financial
over five years from the following fiscal year.
statements from limited liability investment partnerships and similar
(Additional information)
investments, regarded as marketable securities under Article 2-2 of the
Effective from the year ended March 31, 2009, the revision of useful life
Financial Instruments and Exchange Law of Japan, is calculated based on
of some machinery and equipment was made following the revision of
the relevant financial statements for the partnership available as of the
the useful life defined under the revised Corporation Tax Law of Japan.
reporting date stipulated in the partnership agreement.
d. Derivatives
operations for the year ended March 31, 2009.
Derivatives are stated at fair market value.
b. Intangible assets (excluding lease assets):
e. Inventories
Depreciation is computed using the straight-line method. The straight-
Inventories are stated at cost, cost being determined mainly by the
line method is adopted over the useful life of within 5 years for software
gross-average method (with regard to the amounts stated in the balance
for internal use.
sheet, the method of book value devaluation based on decline in
c. Lease assets
profitability is used).
Lease assets involving finance lease transactions of which the ownership
is transferred to lessees:
Also, work in process is stated at cost, cost being determined mainly
Regarding property, plant and equipment acquired on or before
The adoption had minor impact on the consolidated statement of
by the specific identification method (with regard to the amounts stated
in the balance sheet, the method of book value devaluation based on
property, plant and equipment owned by the Company.
decline in profitability is used).
ownership is not transferred to lessees:
Prior to April 1, 2008, inventories of the Company and domestic
Depreciation method for such assets is the same as that applies to
Lease assets involving finance lease transactions of which the
consolidated subsidiaries are stated at cost determined by the gross-
average method. Effective April 1, 2008, the Company and domestic
values being zero over their leased periods used as the number of years
consolidated subsidiaries adopted a new accounting standard for
for useful life.
Depreciation method is the straight line method with their residual
measurement of inventories, “Accounting Standard for Measurement of
Inventories” (ASBJ Statement No. 9, issued July 5, 2006), and stated the
(5) Allowances and provisions
inventories at the lower of gross-average cost or net realizable value at
a. Allowance for doubtful accounts
March 31, 2009.
The reserve for doubtful accounts is provided in the amount sufficient to
cover possible losses based on a historical write-off of general receivables.
The adoption had minor impact on the consolidated statement of
operations for the year ended March 31, 2009.
Allowance for doubtful accounts and bankrupt receivables are calculated
based on an individual assessment of the possibility of collection.
63
DETERMINATION
b. Provision for bonuses
Accrued employees’ bonuses are provided based on the estimated
At the Ordinary General Meeting of the Company and Sammy
amount to be paid.
Corporation, a consolidated subsidiary, held in June 2009, it was
c. Provision for directors’ bonuses
resolved to grant final retirement benefits to directors and corporate
The estimated amount of bonuses for the fiscal year under review was
auditors in conjunction with the abolishment of the existing retirement
recorded to meet the bonus payments to directors and corporate
benefits scheme for them. Due to this change, allowance for retirement
auditors.
benefits for directors and corporate auditors was reversed and unpaid
d. Provision for point card certificates
portion of final retirement benefits is recognized in “Other” of non-
In order to prepare for expenses associated with the redemption of
current liabilities.
points earned by customers, an estimated amount related to future
redemption is posted in the fiscal year under review.
(6) Accounting for significant hedge
e. Provision for retirement benefits
a. Hedge accounting
The Company and its consolidated subsidiaries provide provision for
The Company adopts deferred hedge accounting. However, special
retirement benefits based on the estimated amounts of projected
treatment (under special treatment, the net amount to be paid or
benefit obligation and the fair value of the plan assets. The estimated
received under the interest rate swap contract is added to or deducted
amount of all retirement benefits to be paid at the future retirement date
from the interest on the assets or liabilities for which the swap contract
is allocated equally to each service year using the estimated number of
was executed) is used for qualifying interest rate swap transactions.
total service years. Prior service cost is charged to income when incurred
Moreover, allocation hedge accounting is applied to qualifying forward
except for SEGA CORPORATION and three other subsidiaries that
exchange contracts.
recognize prior service cost as expenses using the straight-line method
b. Hedging instruments and hedged items
over ten years. Actuarial gains and losses are charged to income in the
Hedging instruments: Interest rate swaps, forward exchange contracts
succeeding period except for SEGA CORPORATION and three other
Hedged items: Interest on loans payable, receivables and payables
subsidiaries that recognize actuarial gains and losses as expenses using
denominated in foreign currencies.
the straight-line method over ten years commencing from the
c. Hedge policy
succeeding period. Straight-line method is used for allocation of
Derivative instruments are used to mitigate risks associated with foreign
projected benefit obligations.
exchange and interest rate fluctuations.
(Change in significant accounting policies used in preparation of
consolidated financial statements)
exists, and not for speculative purposes.
Effective from the fiscal year ended March 31, 2010, the Company and
d. Evaluation of hedge effectiveness
its domestic consolidated subsidiaries adopted the “Partial Amendments
Hedge effectiveness is evaluated through comparative analysis of the
to Accounting Standard for Retirement Benefits (Part 3)” (ASBJ
cumulative fluctuations in the market between the hedged item and the
Statement No. 19, issued on July 31, 2008). The new accounting
hedging instrument. For interest rate swaps applied to special treatment,
standard requires domestic companies to use the rate of return on long-
hedge effectiveness is not evaluated.
As a rule, hedging is only used for items in which actual demand
term government or gilt-edged bonds as of the end of the fiscal year for
calculating the projected benefit obligation of a defined-benefit plan.
(7) Consumption taxes
Previously, domestic companies were allowed to use a discount rate
Consumption taxes and local consumption taxes are accounted using
determined by taking into consideration of fluctuations in the yield of
the net-of-tax method.
long-term government or gilt-edged bonds over a certain period. This
change had no impact on the consolidated financial statements for the
(8) Valuation of assets and liabilities of consolidated subsidiaries
year ended March 31, 2010.
The assets and liabilities of consolidated subsidiaries are evaluated using
f. Provision for directors’ retirement benefits
the fair value including the portion attributable to minority shareholders
The Company and certain domestic consolidated subsidiaries provide
at the time of the acquisition.
provision for directors’ retirement benefits to adequately cover payment
of such benefits at the end of the applicable period in accordance with
internal regulations.
64
(9) Amortization of goodwill and negative goodwill
among projected sales volume as cost of sales, and treat the amount of
If the duration of the effect of goodwill can be rationally estimated,
such expenses for the non-current assets equivalent to the depreciation
amortization is made over the estimated number of years, in other
calculated based on their respective useful lives as cost of sales.
cases, amortization is made over the five-year-period by the straight line
method.
properly evaluating the certainty of realizing earnings by clarifying
The rationale for this change is to redeploy a framework capable of
decision-making processes at the development stages of each project in
(10) C
ash and cash equivalents in the consolidated statements of
cash flows
line with efforts to review and enhance the development structure. This
change will enable the appropriate disclosure of income for a given fiscal
In preparing the consolidated statements of cash flows, cash on hand,
period by directly matching content production expenses, which tend to
readily available deposits and short-term highly liquid investments with
grow sharply in recent years, with corresponding earnings.
maturities not exceeding three months at the time of purchase are
considered to be cash and cash equivalents.
increased by ¥6,671 million ($71,694 thousand), amusement machines
As a consequence of this change, work in process under inventories
under property, plant and equipment increased by ¥43 million ($464
NOTE 3
thousand), construction in progress increased by ¥6 million ($66
Changes in Accounting Policies
thousand), other under intangible assets increased by ¥796 million
(1) Adoption of accounting standards for construction contracts
($8,558 thousand), other under current assets decreased by ¥1,724
Prior to the year ended March 31, 2010, the Company and domestic
million ($18,530 thousand), foreign currency translation adjustment
consolidated subsidiaries (the “domestic companies”) recognized
decreased by ¥6 million ($73 thousand), while operating income and
revenues and costs of construction contracts using the completed-
income before income taxes and minority interests each increased by
contract method. Effective from the year ended March 31, 2010, the
¥5,799 million ($62,325 thousand).
domestic companies adopted the “Accounting Standard for Construction
The effect on the segment information is disclosed in the relevant note.
Contracts” (ASBJ Statement No.15, issued on December 27, 2007) and
the “Guidance on Accounting Standard for Construction Contracts” (ASBJ
Guidance No.18, issued on December 27, 2007). Accordingly, when
the outcome of individual contracts can be estimated reliably, the
domestic companies apply the percentage-of-completion method to
work commencing during the year ended March 31, 2010, otherwise
the completed-contract method is applied. The percentage/stage of
completion at the end of the reporting period is measured by the
proportion of the cost incurred to the estimated total cost.
The change had no impact on the consolidated financial statements.
(2) C
hange in accounting treatment for content production
expenses
Content production expenses related to game software and amusement
machines conducted primarily by the consolidated subsidiary of SEGA
CORPORATION was accounted for as cost of sales at the time that such
expenses are incurred (when production work is outsourced, these
expenses are first posted as advance payments, and later treated as cost of
sales at the time that production work is inspected). However, from the
fiscal year ended March 31, 2010, if the production is authorized to be
commercialized, the costs are capitalized as inventories and non-current
assets. With opting to treat the amount of such expenses for the inventories
equivalent to the actual sales volume recorded as of the fiscal year-end
65
DETERMINATION
NOTE 4
Notes to Consolidated Balance Sheets
(1) Assets pledged
Millions of yen
Assets Pledged
Time deposits
Buildings and structures
2010
Liabilities to be covered
2010
¥ 5
Accounts payable−trade
¥ 1
1,327
Accrued expenses
0
Land
2,433
Short-term loans payable
900
Total
¥3,766
Long-term loans payable
2,300
Thousands of U.S. dollars (Note 1)
Assets Pledged
Time deposits
2010
2010
$ 53
$ 20
14,266
Accrued expenses
Land
26,157
9,672
0
Total
$40,477
24,717
Millions of yen
Assets Pledged
2009
2009
Time deposits
¥ 25
¥ 15
Notes receivable–trade
341
Accrued expenses
0
1,400
1,455
Land
2,433
2,500
Total
¥4,201
(2) Loan securities
Loan securities of ¥279 million ($3,002 thousand) and ¥171 million are included in investment securities as of March 31, 2010 and 2009,
respectively.
(3) Guarantee
Guarantee to the companies as of March 31, 2010 and 2009 is as follows:
Thousands of
Millions of yen
66
2010
2009
2010
¥10
¥ 133
$107
Lease obligation
43
100
472
Lease obligation
–
0
–
GINZA CORPORATION
Guarantee to accounts receivable
–
2,285
–
Sega Shanghai & Co., Ltd.
Joint and several guarantee to bank loan
–
71
–
Sega Games Holding Ltd.
Guarantee to accounts payable
8
–
90
Guarantee
Description
Dimps Corporation
Guarantee to bank loan
Orix Premium Ltd.
Electronic Approval System Council
(4) Revaluation reserve for land
(5) Contingent liability
SEGA CORPORATION, a consolidated subsidiary of the Company,
It was discovered that a former employee of SEGA TOYS, CO., LTD., a
revalues land for its business in accordance with the Land Revaluation
consolidated subsidiary of the Company, had been forging company’s
Law, and records the entire difference between the carrying amount and
documents such as order forms, and conducting inappropriate
revalued amount as revaluation reserve for land in a separate
transactions without ever going through the accounting records, with
component of net assets.
multiple business partners. There would be a possibility that the
payment will be required on the claims from the ones who acquired
Revaluation of land was performed by making a reasonable
adjustment on the land based on the market value estimated in
fictitious accounts receivable (approximately ¥380 million, $4,083
accordance with relevant provisions of the Land Revaluation Law.
thousand) occurred through the inappropriate transactions.
Date of revaluation: March 31, 2002
NOTE 5
Notes to Consolidated Statements of Operations
(4) Loss on closing of stores
(1) Devaluation of inventories
Loss on closing of stores is the expenses such as restoration recognized
The book value devaluation of inventories held for normal sales purpose
due to closing of amusement arcades.
based on decline in profitability included in cost of sales amounted to
¥4,664 million ($50,128 thousand) and ¥2,886 million for the years
(5) Impairment loss
ended March 31, 2010 and 2009, respectively.
For each business segment, the Company classifies assets or asset
groups based on whether their cash flows can be estimated
(2) Research and development expenses
independently. The book values of assets or asset groups whose market
Expenses relating to research and development activities have been
values declined significantly or that are projected to consistently generate
charged to income as incurred amounted to ¥41,502 million ($446,023
negative cash flows are reduced to their recoverable value. The amount
thousand) and ¥59,676 million for the years ended March 31, 2010
of this reduction is deemed an impairment loss and is recorded under
and 2009, respectively.
other expenses in the consolidated financial statements.
The recoverable value is calculated using the fair value less cost to sell
based on the current market price.
(3) Gain on outlawed debt
Gain on outlawed debt was recognized by being released from the debt
booked as accrued expenses, due to being outlawed.
Impairment loss for the year ended March 31, 2010 consists of the following:
Impairment Loss
Use
Location
Type
Amusement facilities
U.S.
Amusement game machines
Other property, plant and equipment
Ishioka-shi, Ibaraki
and 15 other locations
Assets for business, etc.
Ota-ku, Tokyo
$ 2,489
165
1,778
952
629
6,763
182
1,965
14
158
Land
Other intangible assets
Total
¥ 231
Chuo-ku, Osaka
Thousands of
88
Assets for rent
Millions of yen
77
837
1,613
17,344
580
6,233
25
279
153
1,653
93
1,001
¥3,857
$41,456
67
DETERMINATION
Impairment loss for the year ended March 31, 2009 consisted of the following:
Impairment Loss
Use
Location
Type
Amusement facilities
Shibuya-ku, Tokyo
Kawagoe-shi, Saitama
Chuo-ku, Saitama
41
93
32
Midori-ku, Chiba
68
115
8
82
36
2
75
39
1
204
54
23
1
1,023
2,471
24
442
Land
232
183
Total
4
Assets for business, etc.
2
Ogaki-shi, Gifu
5
94
U.S.
2
Izumi-shi, Osaka
63
51
Hachioji-shi, Tokyo
2
165
Kokurakita-ku, Kitakyusyu
48
86
Tsuzuki-ku, Yokohama
¥ 203
Higashi Osaka-shi, Osaka
Millions of yen
544
¥6,465
NOTE 6
Notes to Consolidated Statements of Changes in Net Assets
(1) Number of outstanding common stock:
2010
2009
Balance at beginning of the year
283,229,476
283,229,476
Balance at end of the year
283,229,476
283,229,476
(2) Number of outstanding treasury stock:
Balance at beginning of the year
2010
2009
31,305,733
31,292,007
11,718
20,892
1,650
7,166
31,315,801
31,305,733
Increase due to purchase of odd stock
Decrease due to sale of odd stock
Balance at end of the year
(3) Dividends
Year ended March 31, 2010
1 Dividend
Total dividend
(Millions of yen)
Dividend per share
(Yen)
Common stock
¥3,778
¥15
Board of Directors’ Meeting on
October 30, 2009
Common stock
3,778
15
Resolution
Type of stock
Total dividend (Thousands
of U.S. dollars (Note 1))
Dividend per share
(U.S. dollars (Note 1))
May 15, 2009
Common stock
$40,611
$0.16
October 30, 2009
Common stock
40,610
0.16
Resolution
Type of stock
May 15, 2009
Record date
Effective date
March 31, 2009
June 3, 2009
September 30, 2009
December 2, 2009
Record date
Effective date
March 31, 2009
June 3, 2009
September 30, 2009
December 2, 2009
2 Of the dividends of which the record date is in the fiscal year under review, but the effective date is in the following fiscal year
Resolution
Type of stock
Resource of dividend
May 14, 2010
Common stock
Retained
earnings
Resolution
Type of stock
May 14, 2010
Common stock
Retained
earnings
Total dividend
(Millions of yen)
¥3,778
Dividend per share
(Yen)
¥15
Total dividend (Thousands
of U.S. dollars (Note 1))
Dividend per share
(U.S. dollars (Note 1))
$40,609
$0.16
Record date
Effective date
March 31, 2010
June 1, 2010
Record date
Effective date
March 31, 2010
June 1, 2010
69
DETERMINATION
1 Dividend
Total dividend
(Millions of yen)
Dividend per share
(Yen)
Common stock
¥3,779
¥15
Common stock
3,778
15
Resolution
Type of stock
May 15, 2008
October 31, 2008
Record date
Effective date
March 31, 2008
June 3, 2008
September 30, 2008
December 2, 2008
2 Of the dividends of which the record date is in the fiscal year under review, but the effective date is in the following fiscal year
Resolution
Type of stock
May 15, 2009
Common stock
Total dividend
(Millions of yen)
Retained
earnings
Dividend per share
(Yen)
¥3,778
¥15
Record date
Effective date
March 31, 2009
June 3, 2009
NOTE 7
Notes to Consolidated Statements of Cash Flows
Cash and cash equivalents at March 31, 2010 and 2009 consisted of the following:
Millions of yen
Cash and deposits
Total
Time deposits with maturities of more than three months
Short-term investments securities excluding commercial papers maturing within three months from the
acquisition date
Cash and cash equivalents
2010
2010
¥101,324
$1,088,927
73,400
788,824
174,724
1,877,751
(4,530)
(3,194)
¥167,000
Millions of yen
2009
Cash and deposits
Total
Time deposits with maturities of more than three months
Short-term investment securities excluding commercial papers maturing within three months from the
acquisition date
Cash and cash equivalents
70
Thousands of
¥106,436
26,798
133,235
(8,050)
(1,799)
¥123,385
(48,683)
(34,329)
$1,794,738
NOTE 8
Information for Certain Leases
A summary of assumed amounts of acquisition cost, accumulated depreciation, accumulated impairment losses and net book value for the years
ended March 31, 2010 and 2009 with respect to the finance leases accounted for in the same manner as operating leases is as follows:
Millions of yen
Acquisition cost
Accumulated
depreciation
Accumulated
impairment losses
Net book value
¥ 255
¥ 182
¥ –
¥ 73
Tools, furniture and fixtures
781
645
7
128
Machinery and equipment
174
127
–
46
Amusement machines
358
314
–
43
March 31, 2010:
Structures
Software
Total
76
70
5
0
¥1,645
¥1,339
¥13
¥292
Acquisition cost
Accumulated
depreciation
Accumulated
impairment losses
Net book value
March 31, 2010:
Structures
$ 2,744
$ 1,957
$ –
$ 786
8,393
6,932
78
1,383
1,874
1,374
–
500
Amusement machines
3,847
3,374
–
472
825
760
64
1
$17,686
$14,398
$142
$3,144
Acquisition cost
Accumulated
depreciation
Accumulated
impairment losses
Net book value
¥ 255
¥ 145
¥ –
¥ 109
1,427
920
62
445
174
101
–
72
1,175
900
–
274
Software
Total
Millions of yen
March 31, 2009:
Structures
Amusement machines
Software
Total
466
295
5
165
¥3,499
¥2,364
¥68
¥1,067
Finance lease transaction:
Lease assets mainly consist of followings: Property, plant and equipment
ownership of the lease assets is not transferred to lessees are
that are mainly facilities for amusement center operations, such as
depreciated using the method to calculate depreciation for such assets is
buildings and structures, amusement game machines, and intangible
the straight line method with their residual values being zero over their
assets that are mainly software for amusement machine sales.
leased periods used as the number of years for useful life.
Lease assets involving finance lease transactions under which the
The methods of depreciation for lease assets are as follows: Lease
assets involving finance lease transactions under which the ownership of
the lease assets is transferred to lessees are depreciated using the
method to calculate depreciation expenses for such assets is the same
as that applied to property, plant and equipment owned by the
Company.
71
DETERMINATION
Future lease payments under the finance leases that are accounted for in the same manner as operating leases as of March 31, 2010 and 2009
are as follows:
Thousands of
Millions of yen
Due within one year
Due after one year
2010
2009
2010
¥230
¥ 685
$2,473
77
421
834
Total
¥307
¥1,106
$3,307
Liability of impairment loss for lease assets
¥ 0
¥ 21
$ 9
There was other liability of impairment loss for lease assets recorded but not required to disclose due to its immateriality for the year ended March
31, 2009.
A summary of assumed amounts of lease payments, assumed depreciation, and interest expenses for the years ended March 31, 2010 and
2009 with respect to the finance leases accounted for in the same manner as operating leases are as follows:
Thousands of
Millions of yen
Lease payments
Reversal of liability of impairment loss for lease assets
2010
2009
2010
¥672
¥1,183
$7,230
20
53
220
Depreciation
638
1,119
6,859
Interest expenses
18
50
199
Future lease payments for operating lease transaction which cannot be canceled as of March 31, 2010 and 2009 are as follows:
Thousands of
Millions of yen
Due within one year
Due after one year
Total
2010
2009
2010
¥1,487
¥ 1,940
$15,987
5,971
9,992
64,171
¥7,458
¥11,932
$80,158
NOTE 9
In addition, funds for each business are procured for what is necessary
Financial Instruments
in accordance with the fund plan for each business company through
bank loans and issuance of bonds. Funds are invested in low-risk
Effective from the fiscal year ended March 31, 2010, the Company
financial assets. Derivatives are used, not for speculative purposes, but to
adopted the revised accounting standard, “Accounting Standard for
manage exposure to financial risks as described later.
Financial Instruments” (ASBJ Statement No.10, revised on March 10,
2008) and the “Guidance on Disclosures about Fair Value of Financial
(2) Nature and extent of risks arising from financial instruments
Instruments” (ASBJ Guidance No.19, revised on March 10, 2008).
Receivables such as notes and accounts receivable-trade are exposed to
Information on financial instruments for the year ended March 31, 2010
customer credit risks. In addition, foreign currency-denominated trade
required pursuant to the revised accounting standards is as follows.
receivables are exposed to foreign currency exchange fluctuation risks.
However, certain parts of the risks are hedged by forward exchange
72
1. Outline of financial instruments
contract. Short-term investment securities and investment securities are
(1) Policy for financial instruments
mainly held-to-maturity debt securities and the stocks acquired for
The Group signed an agreement concerning commitment line by the
business collaborations with business partners, and they are exposed to
syndicated method, such as securing medium-term fund liquidity at the
the risk of market price fluctuations.
Company as the holding company, as a safety net for the entire group.
Of the payables such as notes and accounts payable–trade, trade
payables denominated in foreign currencies are exposed to foreign
and by month, in parts of trade receivables and payables and loan
currency exchange fluctuation risks. However, certain parts of the risks
receivables denominated in foreign currencies, and trade receivables
are hedged by forward exchange contracts. Loans and bonds payable
and payables which are expected to certainly occur due to exports and
are for the purpose of procurement of funds necessary for operating
imports (forecasted transactions). In addition, certain consolidated
funds and capital investment, and parts of them have floating interest
subsidiaries use interest rate swap transactions intended to hedge
rates. For this reason, they are exposed to interest rate fluctuation risks.
fluctuation risks of interests on variable interest-loans and bonds payable.
Derivative transactions consist of forward exchange contracts
With respect to short-term investment securities and investment
intended to hedge foreign currency exchange fluctuation risks for trade
securities, their fair values and financial positions of the related issuers
receivables and payables denominated in foreign currencies, as well as
(the counterparties) are regularly checked for reports at each company’s
loan receivables denominated in foreign currencies, and interest swap
Board of Directors’ meeting, etc. In addition, holding of short-term
transactions intended to hedge fluctuation risks of interests on loans and
investment securities and investment securities other than held-to-
bonds payable. For details of hedging instruments, hedging items,
maturity debt securities are continuously reviewed in consideration of
hedging policy and the method for evaluating hedging effectiveness
relationships with the counterparties.
concerning hedge accounting, please refer to the aforementioned “Note
2-Summary of Significant Accounting Policies, (6) Accounting for
the accounting department executes and manages transactions upon
significant hedge”.
obtaining internal approvals in compliance with the regulations approved
With regards to derivative transactions, the financial department or
by each company’s Board of Directors’ meetings. In addition, reports on
(3) Risk management for financial instruments
the situations of derivative transactions are made to each company’s
1) Credit risk management (customers’ default risk)
Board of Directors’ meeting when and where appropriate.
With respect to trade receivables, departments in charge regularly
3) Liquidity risk management on fund raising (risk for delinquency)
monitor the situations of major customers in compliance with each
Trade payables and loans are exposed to liquidity risk. In the Group,
company’s management regulations for receivables, to control payment
liquidity risk is managed by setting appropriate fund balance for each
terms and balances of customers, in order to detect collection concerns
company, and by each company’s updating fund plans monthly to
such as worsening of financial conditions early and lessen the
maintain the balance that exceeds the set fund balance, and by the
possibilities for collection problems.
Company’s confirming each company’s cash position.
The credit risk for held-to-maturity debt securities is minimal because the
investments of these financial assets are limited to high credit rating
issuers in accordance with the fund operation management rules.
(4) Supplementary explanations concerning fair values of financial
instruments
Customers of derivative transactions are in principle limited to
Fair values of financial instruments comprise values determined based
correspondent financial institutions.
on market prices and values determined reasonably when there is no
The amount of maximum risk as of the consolidated settlement date is
market price. Since variable factors are incorporated in computing the
expressed by the amounts of financial assets exposed to credit risks in
relevant fair values, such fair values may vary depending on the different
the balance sheet.
assumptions. The notional amounts and other information described in
2) Market risk management (foreign currency exchange and interest rate
the “Note11-Derivative Transactions” do not indicate the amounts of
fluctuation risks)
market risk exposed to derivative transactions.
Certain consolidated subsidiaries use forward exchange contracts to
hedge foreign currency exchange fluctuation risks identified by currency
73
DETERMINATION
2. Matters concerning the fair value of financial instruments
The consolidated balance sheet amount and fair value of financial instruments as of March 31, 2010 as well as the differences between these values
are described below. Financial instruments whose fair values are not readily determinable are not included in the table. (See Note 2, below)
Millions of yen
(1) Cash and deposits
(2) Notes and accounts receivable–trade
Consolidated
balance sheet amount
Fair value
Valuation gains
(losses)
¥101,324
¥101,324
¥ –
67,027
66,872
1,803
1,808
90,263
90,263
511
198
(312)
260,930
260,468
(461)
37,387
37,387
–
3,489
3,489
–
6,173
6,205
(31)
20,600
20,600
–
41,501
41,040
460
109,152
108,723
428
(154)
(3) Short-term investment securities and investment securities
1) Held-to-maturity debt securities
2) Available-for-sale securities
3) Equity securities issued by affiliated companies
*1
Total assets
(1) Notes and accounts payable–trade
(2) Short-term loans payable
(3) Long-term loans payable
(4) Current portion of Corporate bonds
(5) Corporate bonds payable
Total liabilities
5
–
Derivative transactions *2
1) Derivative transactions to which hedge accounting is not applied
2) Derivative transactions to which hedge accounting is applied
Total derivative transactions
92
92
–
111
111
–
¥ 203
¥ 203
¥ –
Consolidated
Fair value
Valuation gains
(losses)
$1,088,927
$1,088,927
$ –
720,340
718,674
19,377
19,440
970,049
970,049
5,497
2,138
(3,359)
2,804,192
2,799,230
(4,962)
401,803
401,803
–
37,501
37,501
–
(1) Cash and deposits
(2) Notes and accounts receivable–trade
(1,665)
1) Held-to-maturity debt securities
2) Available-for-sale securities
3) Equity securities issued by affiliated companies
*1
Total assets
(1) Notes and accounts payable–trade
(2) Short-term loans payable
(3) Long-term loans payable
(4) Current portion of Corporate bonds
(5) Corporate bonds payable
Total liabilities
62
–
66,346
66,689
221,391
221,391
(343)
–
446,010
441,057
4,952
1,173,053
1,168,444
4,609
Derivative transactions *2
1) Derivative transactions to which hedge accounting is not applied
2) Derivative transactions to which hedge accounting is applied
Total derivative transactions
991
991
–
1,193
1,193
–
$ 2,185
$ 2,185
$ –
*1.Since the fair values of embedded derivatives cannot be reasonably categorized and measured, those of the entire composite financial instruments are evaluated, and included in investment securities.
*2.Receivables and payables incurred by derivative transactions are presented in net.
74
Note 1: Calculation method of fair values of financial instruments and securities and derivative
transactions
Assets
(1) Cash and deposits and (2) Notes and accounts receivable–trade
Of these, items that are settled in the short term (within a year) are recorded using book values, as their
fair values approximate book values. In addition, of notes and accounts receivable–trade, those which
have more than a year to the payment date from March 31, 2010 are stated at the present values by discounting the amount of claim for each receivable with the interest rate calculated by the payment period
and credit risk.
The fair values of stocks are determined using the quoted price at the stock exchange, and those of
bonds are determined using the quoted price at the exchange or the quoted price obtained from the
financial institutions. In addition, negotiable certificates of deposit included in available-for-sale securities
are recorded using book values, as they are settled in the short term (within a year) and their fair values
approximate book values. Notes concerning securities by holding purpose are listed in the “Note10 Investment Securities.”
Liabilities
(1) Notes and accounts payable−trade (2) Short-term loans payable and (4) Current portion of
Corporate bonds
Of these, items that are settled in the short term (within a year) are recorded using book values, as their
fair values approximate book values. Of the short-term loans payable, fair values of the loans hedged by
interest rate swap contracts meeting certain conditions are calculated by combining them with the relevant interest rate swap.
(3) Long-term loans payable and (5) Corporate bonds payable
These are stated with the present values calculated by discounting the aggregated values of the principal
and interest using an assumed interest rate if loans are newly made. Of the long-term loans payable, fair
values of the loans hedged by interest rate swap contracts meeting certain conditions are calculated by
combining them with the relevant interest rate swap.
Note 2: Financial instruments whose fair values are not readily determinable
Millions of yen
Consolidated
Item
Unlisted equity securities
¥1,645
Investment in investment limited partnerships, etc.
3,952
Equity securities issued by non-consolidated subsidiaries
2,403
Equity securities issued by affiliated companies
1,205
Investments in capital of affiliated companies
220
Thousands of U.S.
dollars (Note 1)
Consolidated
Item
Unlisted equity securities
$17,682
Investment in investment limited partnerships, etc.
42,481
Equity securities issued by non-consolidated subsidiaries
25,831
Equity securities issued by affiliated companies
12,957
Investments in capital of affiliated companies
2,365
These items are not included in “(3) Short-term investment securities and investment securities,”
because there is no market price, future cash flows cannot be estimated and it is very difficult to identify
fair values.
Derivative transactions
Notes concerning derivatives are listed in the “Note11-Derivative Transactions”.
Note 3: Redemption schedule of monetary assets and securities with contractual maturities
Millions of yen
Cash and deposits
Notes and accounts receivable-trade
Within one year
One to five years
Five to ten years
Over ten years
¥101,324
¥ –
¥ –
¥ –
65,232
1,795
–
–
Short-term investment securities and investment securities
Held-to-maturity debt securities
Available-for-sale securities with maturities*
Total
195
1,405
200
–
73,205
800
–
3,000
¥239,958
¥4,000
¥200
¥3,000
Within one year
One to five years
Five to ten years
Over ten years
$1,088,927
$ –
$ –
$ –
701,049
19,291
–
–
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities and investment securities
Held-to-maturity debt securities
Available-for-sale securities with maturities*
Total
2,095
15,099
2,149
–
786,735
8,597
–
32,240
$2,578,807
$42,988
$2,149
$32,240
* With respect to bonds with early redemption clause, their expected redemption amounts at maturity without applying the early redemption clause are listed.
Note 4: For redemption supplemental schedule of corporate bonds payable, long-term loans payable, lease obligations and other interest-bearing liabilities after March 31, 2010, refer to “Supplemental Schedule of
Corporate bonds” and “Supplemental schedule of borrowings” in “Note19-Supplemental Schedule of Corporate Bonds and Borrowings.”
75
DETERMINATION
NOTE 10
Investment Securities
1. Held-to-maturity debt securities (as of March 31, 2010)
(1) Securities whose market value exceeds the consolidated balance sheet amount
Millions of yen
Category
Consolidated
Fair value
Valuation gains
¥ –
¥ –
¥ –
804
815
10
a. Government/municipal bonds
b. Corporate bonds
c. Other
–
–
–
Total
¥804
¥815
¥10
Category
Consolidated
Fair value
Valuation gains
$ –
$ –
$ –
b. Corporate bonds
8,645
8,762
116
c. Other
–
–
–
Total
$8,645
$8,762
$116
(2) Securities whose market value is equal to or lower than the consolidated balance sheet amount
Millions of yen
Consolidated
Fair value
Valuation losses
¥ –
¥ –
¥ –
998
993
c. Other
–
–
Total
¥998
¥993
Consolidated
Fair value
Valuation losses
$ –
$ –
$ –
Category
b. Corporate bonds
(5)
–
¥(5)
Category
b. Corporate bonds
10,732
10,678
c. Other
–
–
(53)
Total
$10,732
$10,678
Consolidated
Acquisition cost
Valuation gains
a. Shares
¥12,190
¥11,056
¥1,133
b. Bonds
1,006
1,000
6
–
$(53)
2. Available-for-sale securities (as of March 31, 2010)
(1) Securities whose consolidated balance sheet amount exceeds the acquisition cost
Millions of yen
Category
76
c. Other
–
–
–
Total
¥13,196
¥12,056
¥1,140
Consolidated
Acquisition cost
Valuation gains
a. Shares
$131,005
$118,821
$12,184
b. Bonds
10,818
10,746
72
Category
c. Other
–
–
–
Total
$141,824
$129,568
$12,256
Consolidated
Acquisition cost
Valuation losses
¥ 1,480
¥ 1,619
¥(139)
(417)
(2) Securities whose consolidated balance sheet amount is equal to or lower than the acquisition cost
Millions of yen
Category
a. Shares
b. Bonds
2,379
2,797
c. Other
73,205
73,205
Total
¥77,066
¥77,622
–
¥(556)
Consolidated
Acquisition cost
a. Shares
$ 15,911
$ 17,408
$(1,496)
b. Bonds
25,577
30,062
(4,485)
Category
c. Other
786,735
786,735
Total
$828,224
$834,207
Valuation losses
–
$(5,982)
Note: “Bonds” in “Securities whose consolidated balance sheet amount is equal to or lower than the acquisition cost” include composite financial instruments, and the valuation losses of ¥2 million ($28 thousand) are
posted in the Other expenses.
3. Available-for-sale securities sold during the year ended March 31, 2010 (from April 1, 2009 to March 31, 2010)
Millions of yen
Category
Amount of proceeds
Total gains on sales
a. Shares
¥ 863
¥255
b. Bonds
1,011
2
c. Other
–
–
Total
¥1,874
¥258
Amount of proceeds
Total gains on sales
a. Shares
$ 9,284
$2,745
b. Bonds
Total losses on sales
¥(35)
–
–
¥(35)
Category
Total losses on sales
$(384)
10,865
27
–
c. Other
–
–
–
Total
$20,149
$2,773
$(384)
77
DETERMINATION
4. Impairment loss on securities (from April 1, 2009 to March 31, 2010)
During the year ended March 31, 2010, the Company recognized impairment loss on available-for-sale-securities in an amount of ¥2,465 million
($26,493 thousand).
Balance sheet amounts, fair values and valuation losses of held-to-maturity debt securities with available fair values as of March 31, 2009 were as
follows:
Millions of yen
Balance sheet amount
Fair value
¥1,899
¥1,728
Valuation losses
Securities whose market value is equal to or lower than the balance sheet amount:
Corporate bonds
¥(171)
Acquisition costs, balance sheet amounts and valuation gains or losses of available-for-sale securities with available fair values as of March 31, 2009
were as follows:
Millions of yen
Acquisition cost
Balance sheet amount
Valuation gains
/(losses)
¥ 590
¥ 998
¥ 407
11,839
10,261
(1,577)
3,000
2,562
(437)
Securities whose market value exceeds the balance sheet amount:
Shares
Securities whose market value is equal to or lower than the balance sheet amount:
Shares
Bonds and debenture
Available-for-sale securities sold in the year ended March 31, 2009 amounted to ¥52 million and the related gains amounted to ¥3 million.
NOTE 11
Derivative Transactions
1. Derivative transactions to which hedge accounting is not applied
(1) Currency-related derivatives
Millions of yen
Category
Transactions other than market
transactions
Contract value
Contract value
due after one year
Fair value
Unrealized gains
(losses)
¥1,785
¥–
¥30
¥30
1,441
–
68
68
174
–
(8)
(8)
Forward exchange contracts
Selling
UK pound
Euro
Buying
U.S. dollar
Euro
Total
78
79
–
2
2
¥3,481
¥–
¥92
¥92
Category
Transactions other than market
transactions
Contract value
Contract value
due after one year
Fair value
Unrealized gains
(losses)
$19,190
$–
$325
$325
15,495
–
731
731
1,870
–
(88)
(88)
853
–
23
23
$37,410
$–
$991
$991
Selling
UK pound
Euro
Buying
U.S. dollar
Euro
Total
Note: Fair values are calculated using prices quoted by financial institutions.
(2) Composite financial instruments
With respect to composite financial instruments whose fair values cannot be categorized and measured for each embedded derivative, the entire
composite financial instruments are appraised by fair value, and are included in “2. Available-for-sale securities” in the “Note10- Investment Securities.”
2. Derivative transactions to which hedge accounting is applied
(1) Currency-related derivatives
Millions of yen
Contract value
Contract value
due after one year
Fair value
UK pound
¥2,020
¥–
¥125
U.S. dollar
1,506
–
(28)
1,076
–
(10)
904
–
24
¥5,506
¥–
¥111
¥ 57
¥–
Note 2
Contract value
Contract value
due after one year
Fair value
UK pound
$21,710
$–
$1,347
U.S. dollar
16,186
–
(311)
11,566
–
(108)
9,716
–
265
$59,179
$–
$1,193
$ 621
$–
Note 2
Hedge accounting method
Classification
Major hedged items
Primary method
Accounts
receivable−trade
Selling
Buying
UK pound
Accounts
payable−trade
U.S. dollar
Total
Receivables or payables are
translated using forward exchange Buying
contract rates
U.S. dollar
Accounts
payable−trade
Classification
Major hedged items
Primary method
Accounts
receivable−trade
Selling
Buying
UK pound
Accounts
payable−trade
U.S. dollar
Total
Receivables or payables are
translated using forward exchange Buying
contract rates
U.S. dollar
Accounts
payable−trade
Notes: 1. Fair values are calculated using prices quoted by financial institutions.
2.With respect to forward exchange contracts whose exchange rates are used for translating foreign currency-denominated accounts payable-trade, fair values of forward exchange contracts are included in the
fair values of the relevant accounts payable-trade, since they are used for recording accounts payable-trade as hedged items.
79
DETERMINATION
(2) Interest rates
Millions of yen
Classification
Interest rate swaps meeting
certain conditions
Interest rate swaps:
Floating rate into fixed rate
Contract value
Contract value
due after one year
Fair value
¥3,834
¥3,502
Note
¥3,834
¥3,502
¥–
Major hedged items
Contract value
Contract value
due after one year
Fair value
$41,203
$37,635
Note
$41,203
$37,635
$–
Major hedged items
Total
Classification
Interest rate swaps meeting
certain conditions
Interest rate swaps:
Floating rate into fixed rate
Total
Note: With respect to interest rate swap contracts which meet certain conditions, fair values of the interest rate swap contracts are included in the fair values of the relevant long-term loans payable, since they are used
for recording long-term loans payable as hedged items.
The interest rate swap contracts and forward exchange contracts are
To avoid adverse effects of fluctuation of the market risk associated with
executed with creditworthy financial institutions, and the Group believes
financial activities and fluctuation in exchange rate, the interest rate swap
the risk of default by counterparties is currently low.
contracts and forward exchange contracts are used as derivative
transactions in the Group. The derivative financial instruments are used
meeting, the accounting and finance department manages derivative
only for hedging purpose and are not used for speculative trading
transactions after internal authorizations.
Based on the regulation approved by the Board of Directors’
purpose.
NOTE 12
Retirement Benefits
Overview of retirement benefits plans
Domestic consolidated subsidiaries offer, based on the retirement benefit regulations, the employees’ pension plans, the approved retirement pension
plans, and the lump-sum retirement benefit plans. Certain domestic consolidated subsidiaries and overseas consolidated subsidiaries offer the defined
contribution pension plans.
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2010 and
2009 consist of the following:
Thousands of
Millions of yen
2010
1) Projected benefit obligation
2) Pension assets
3) Unrecognized projected benefit obligation
4) Unrecognized actuarial differences
5) Unrecognized prior service cost
Difference
6) Prepaid pension cost
7) Provision for retirement benefits
Note: Some consolidated subsidiaries use the simplified method for calculating projected benefit obligations.
80
2009
2010
¥(25,432)
¥(24,924)
$(273,321)
11,786
10,256
126,670
(13,645)
(14,668)
(146,650)
1,597
3,933
17,162
(63)
(127)
(687)
(12,112)
(10,862)
(130,175)
105
¥(12,218)
11
¥(10,873)
1,137
$(131,313)
Included in the consolidated statements of operations for the years ended March 31, 2010 and 2009, severance and retirement benefit expenses
comprise the following:
Thousands of
Millions of yen
Service costs–benefits earned during the year
2010
2009
2010
¥2,052
¥2,251
$22,053
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial difference
435
428
4,684
(306)
(280)
(3,290)
922
Amortization of prior service cost
(63)
Additional interim benefit
413
Other
1,615
9,909
(144)
(687)
4,801
4,447
346
344
3,721
¥3,800
¥9,016
$40,839
2010
2009
Discount rate
1.5~2.0%
1.5~2.5%
Rate of expected return on plan assets
1.0~2.5%
1.0~2.5%
Severance and retirement benefit expenses
Notes: 1. Retirement benefit expenses of consolidated subsidiaries using the simplified method are added up in “Service costs.”
2. “Other” is a premium paid to the defined contribution pension plan.
NOTE 13
Stock Option Plan
The following tables summarize contents of stock options as of March 31, 2010.
Company name
The Company
The Company
The Company
Date of the annual shareholders’
meeting
June 24, 2005
June 20, 2006
June 20, 2006
Position and number of grantees
The Company’s employees and
subsidiaries’ employees: 944
The Company’s directors: 4
The Company’s employees,
executive officers and subsidiaries’
directors, executive officers and
employees: 1,086
Class and number of stock
Common stock 2,534,000
Common stock 43,000
Common stock 2,701,500
Date of issue
July 29, 2005
August 14, 2006
August 14, 2006
Condition of settlement of rights
Continue to work from July 29,
2005 to July 30, 2007
Continue to work from August 14,
2006 to August 14, 2008
2006 to August 14, 2008
Period grantees provide service in
return for stock options
July 29, 2005 to July 30, 2007
August 14, 2006 to August 14,
2008
2008
Period subscription rights are to be
exercised
July 31, 2007 to July 30, 2009
August 15, 2008 to July 30, 2010
2010
81
DETERMINATION
Company name
Sammy Networks Co., Ltd. Sammy Networks Co., Ltd.
SEGA TOYS CO., LTD.
Date of the annual
shareholders’ meeting
June 22, 2005
June 22, 2005
June 16, 2008
Position and number
of grantees
Sammy Networks
Co., Ltd.’s
employees: 18
Sammy Networks Co., Ltd.’s SEGA TOYS CO., LTD.’s employees: 127
directors: 5
SEGA TOYS CO., LTD.’s subsidiaries’ directors: 4
Sammy Networks Co., Ltd.’s SEGA TOYS CO., LTD.’s subsidiaries’ employees: 36
corporate auditors: 1
Sammy Networks Co., Ltd.’s
employees: 77
Common stock 18
Common stock 353
Common stock 751,500
Date of issue
August 30, 2005
April 28, 2006
September 5, 2008
Condition of settlement
of rights
Continue to work
through exercise
of right
Continue to work through
exercise of right
The holder of stock acquisition rights needs to be in the
position of an employee of SEGA TOYS CO., LTD. or a
director or an employee of a subsidiary of SEGA TOYS
CO., LTD. at the time of exercise of the rights. This
excludes a decision of SEGA TOYS CO., LTD.’s Board of
Directors that allows continuous holding of stock
acquisition rights when justifiable reasons exist, such as
retirement upon expiry of terms for directors and age-limit
retirement for employees.
Other terms and conditions shall be stipulated in the
Agreement on Stock Acquisition Rights signed by SEGA
TOYS CO., LTD. and holders of stock acquisition rights.
Period grantees provide service August 30, 2005 to
in return for stock options
July 30, 2007
April 28, 2006 to July 30,
2007
September 5, 2008 to June 30, 2010
Period subscription rights
are to be exercised
July 31, 2007 to
July 30, 2012
July 1, 2010 to June 30, 2013
July 31, 2007 to
July 30, 2012
Company name
meeting
June 28, 2006
June 28, 2006
June 28, 2006
TMS ENTERTAINMENT, LTD.’s
directors: 6
directors: 5
directors: 5
employees and subsidiaries’
directors: 93
82
Date of issue
August 21, 2006
August 28, 2008
August 27, 2009
2006 to June 30, 2008
2008 to August 31, 2011
2009 to August 31, 2012
Period grantees provide service
in return for stock options
August 21, 2006 to June 30, 2008 August 28, 2008 to August 31,
2011
2012
Period subscription rights are to be
exercised
July 1, 2008 to June 30, 2011
September 1, 2012 to August 31,
2017
September 1, 2011 to August 31,
2016
Company name
Date of the annual shareholders’ meeting
June 16, 2009
TMS ENTERTAINMENT, LTD.’s employees: 100
Subsidiaries’ directors: 7
Date of issue
August 27, 2009
Continue to work from August 27, 2009 to August 31, 2012
Period grantees provide service in return for stock options
August 27, 2009 to August 31, 2012
Period subscription rights are to be exercised
September 1, 2012 to August 31, 2017
The following tables summarize scale and movement of stock as of March 31, 2010
Company name
The Company
The Company
The Company
Sammy Networks Sammy Networks SEGA TOYS
Co., Ltd.
Co., Ltd.
CO., LTD.
meeting
June 24, 2005
June 20, 2006
June 20, 2006
June 22, 2005
June 22, 2005
June 16, 2008
Not exercisable stock options
Stock options outstanding at
April 1, 2009
–
–
–
–
–
738,100
Stock options granted
–
–
–
–
–
–
Forfeitures
–
–
–
–
–
290,600
Conversion to exercisable stock
options
–
–
–
–
–
–
March 31, 2010
–
–
–
–
–
447,500
Exercisable stock options
April 1, 2009
2,046,400
43,000
2,172,000
10
273
–
Conversion from not exercisable
stock options
–
–
–
–
–
–
Stock options exercised
–
–
–
–
–
–
2,046,400
–
121,800
1
12
–
–
43,000
2,050,200
9
261
–
Forfeitures
March 31, 2010
Company name
meeting
TMS
TMS
TMS
TMS
ENTERTAINMENT, ENTERTAINMENT, ENTERTAINMENT, ENTERTAINMENT,
LTD.
LTD.
LTD.
LTD.
June 28, 2006
June 28, 2006
June 28, 2006
June 16, 2009
Not exercisable stock options
April 1, 2009
–
240,000
–
–
Stock options granted
–
–
240,000
888,000
Forfeitures
–
–
–
20,000
Conversion to exercisable stock
options
–
–
–
–
March 31, 2010
–
240,000
240,000
868,000
563,000
–
–
–
–
–
–
–
Exercisable stock options
April 1, 2009
Conversion from not exercisable
stock options
Stock options exercised
Forfeitures
March 31, 2010
–
–
–
–
12,000
–
–
–
551,000
–
–
–
83
DETERMINATION
The following tables summarize price information of stock options as of March 31, 2010
Yen
Company name
The Company
The Company
The Company
Co., Ltd.
Co., Ltd.
CO., LTD.
meeting
June 24, 2005
June 20, 2006
June 20, 2006
June 22, 2005
Exercise price
June 22, 2005
June 16, 2008
¥3,470
¥4,235
¥4,235
¥1,700,000
¥1,053,914
¥280
Average market price of the stock
at the time of exercise
–
–
–
–
–
–
Fair value of the stock option at
the date of grant
–
510
509
–
–
90
Company name
meeting
Exercise price
TMS
TMS
TMS
TMS
LTD.
LTD.
LTD.
LTD.
June 28, 2006
June 28, 2006
June 16, 2009
¥268
¥237
¥237
–
–
–
–
126
62
52
52
the date of grant
June 28, 2006
¥472
Company name
The Company
The Company
The Company
Co., Ltd.
Co., Ltd.
CO., LTD.
meeting
June 24, 2005
June 20, 2006
June 20, 2006
June 22, 2005
Exercise price
June 16, 2008
$45
$45
$18,269
$11,326
$3
–
–
–
–
–
–
the date of grant
–
5
5
–
–
0
Company name
meeting
Exercise price
84
June 22, 2005
$37
TMS
TMS
TMS
TMS
LTD.
LTD.
LTD.
LTD.
June 28, 2006
June 28, 2006
June 28, 2006
June 16, 2009
$5
$2
$2
$2
–
–
–
–
the date of grant
1
0
0
0
NOTE 14
Income Taxes
(1) Significant components of deferred tax assets and liabilities:
Thousands of
Millions of yen
2010
2009
2010
Deferred tax assets:
¥ 1,009
¥ 6,558
$ 10,843
Loss on valuation of inventories
2,077
2,244
22,324
Provision for bonuses
1,480
1,260
15,910
Provision for retirement benefits
4,965
4,422
53,367
17,774
22,432
191,022
Loss on valuation of investment securities
4,250
9,408
45,680
Impairment loss
2,807
2,064
30,170
Others
11,561
18,308
124,252
Tax loss carry forward
51,517
48,687
553,658
Total
97,444
115,388
1,047,231
(89,776)
(105,084)
(964,821)
7,668
10,303
82,409
Depreciation expense
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
(631)
(335)
(6,783)
Others
(1,305)
(1,318)
(14,034)
Total
(1,937)
(1,654)
(20,817)
Recorded deferred tax assets
¥ 5,731
¥ 8,649
$ 61,591
(2) B
reakdown of major causes of the significant difference between the statutory tax rate and the effective tax rate for financial statement
purposes, if any, by item, for the year ended March 31, 2010.
(%)
Statutory tax rate
40.7
(Adjustment)
Amount of excluded income such as dividends income
Deducted amount of inherited tax loss carry forward at merged companies
Changes in valuation allowance
(8.1)
(13.9)
4.0
Other
(1.9)
Effective tax rate for financial statement purposes
20.8
The difference between the statutory tax rate and the effective tax rate for financial statement purposes is not listed because net loss before income
taxes and minority interests was posted for the year ended March 31, 2009.
85
DETERMINATION
NOTE 15
Investment and Rental Property
Effective from the fiscal year ended March 31, 2010, the Company adopted the “Accounting Standard for Disclosures about Fair Value of Investment
and Rental Property” (ASBJ Statement No.20, issued on November 28, 2008) and the “Guidance on Accounting Standard for Disclosures about Fair
Value of Investment and Rental Property” (ASBJ Guidance No.23, issued on November 28, 2008) for the years ending on or after March 31, 2010.
This disclosure is omitted due to the immateriality of the total amount of the investment and rental property.
NOTE 16
Segment Information
A. Industry segment information
Industry segment information for the year ended March 31, 2010 is as follows:
Millions of yen
Pachislot Pachinko
Amusement
Machine Sales
Amusement Center
Operations
Consumer Business
Others
Total
Corporate and
eliminations
Consolidated
¥160,376
¥45,117
¥54,788
¥121,575
¥2,821
¥384,679
¥ –
¥384,679
322
2,807
46
262
911
4,351
(4,351)
–
Total
160,698
47,925
54,835
121,838
3,732
389,030
(4,351)
384,679
Cost of sales and
operating expenses
131,196
40,831
56,173
115,505
3,396
347,103
Operating income/
(loss)
¥ 29,502
¥ 7,094
¥ (1,338)
¥ 6,332
¥ 336
¥ 41,926
¥ (5,213)
¥ 36,712
Total assets
¥108,353
¥27,835
¥37,909
¥ 96,412
¥3,982
¥274,493
¥148,668
¥423,161
Depreciation and
amortization
¥ 4,305
¥ 1,288
¥ 8,212
¥ 3,173
¥ 148
¥ 17,129
¥ 46
¥ 17,175
Impairment loss
¥ 93
¥ 15
¥ 3,584
¥ 137
¥ 26
¥ 3,857
¥ –
¥ 3,857
¥ 3,297
¥ 974
¥ 7,796
¥ 3,952
¥ 189
¥ 16,210
¥ (46)
¥ 16,164
Pachislot Pachinko
Amusement
Machine Sales
Amusement Center
Operations
Consumer Business
Others
Total
Corporate and
eliminations
Consolidated
$1,723,552
$484,875
$588,808
$1,306,561
$30,318
$4,134,116
$ –
$4,134,116
3,463
30,176
499
2,824
9,796
46,760
(46,760)
—
Total
1,727,015
515,051
589,307
1,309,386
40,115
4,180,876
(46,760)
4,134,116
Cost of sales and
operating expenses
1,409,956
438,808
603,692
1,241,332
36,504
3,730,294
9,271
3,739,565
Operating income/
(loss)
$ 317,059
$ 76,242
$ (14,384)
$ 68,053
$ 3,611
$ 450,582
$ (56,031)
$ 394,550
Total assets
$1,164,467
$299,145
$407,405
$1,036,131
$42,801
$2,949,951
$1,597,728
$4,547,680
Depreciation and
amortization
$ 46,275
$ 13,849
$ 88,262
$ 34,103
$ 1,596
$ 184,087
$ 496
$ 184,584
Impairment loss
$ 1,005
$ 169
$ 38,522
$ 1,475
$ 283
$ 41,456
$ –
$ 41,456
$ 35,437
$ 10,474
$ 83,790
$ 42,476
$ 2,033
$ 174,211
$ (495)
$ 173,716
Net sales;
(1) Outside customers
(2) Inter-segment
862
347,966
Net sales;
(2) Inter-segment
86
Notes: 1.The Company has five operating segments based on its management control structure and
the nature of products and markets.
2. Main products and line of business by segment:
(1) Pachislot Pachinko
Development, manufacture and sale of pachinko and pachislot
machines and design parlors
(2) Amusement Machine Sales
Development, manufacture and sale of game machines used in
amusement arcades
(3) Amusement Center Operations
Development, operation, rent and maintenance of amusement
centers
(4) Consumer Business
Development and sale of home video game software,
development, manufacture, and sale of toys, planning and
production of entertainment contents for cellular phones, etc,
planning, production and sale of animated movies
(5) Others
Information provider services, etc.
3.General corporate expenses of ¥4,965 million ($53,362 thousand), which mainly consist of
expenses incurred by the Company’s administrative department, are included in ”Corporate
and eliminations.”
4.Corporate assets of ¥149,052 million ($1,601,855 thousand), which mainly consist of cash
and cash equivalents of SEGA CORPORATION and Sammy Corporation and the Company’s
assets, are included in ”Corporate and eliminations.”
5. (Change of accounting policy)
Content production expenses related to game software and amusement machines conducted primarily by the consolidated subsidiary, SEGA CORPORATION, have previously been accounted for
as cost of sales at the time that such expenses are incurred (when production work is outsourced,
these expenses are first posted as advance payments, and later treated as cost of sales at the time
that production work is inspected). However, from the fiscal year ended March 31, 2010, goods
recognized as products for commercialization are posted under inventories and non-current assets,
with opting to treat the amount of such expenses for the inventories equivalent to the actual sales
volume recorded as of the fiscal year end among projected sales volume as cost of sales, and
treat the amount of such expenses for the non-current assets equivalent to the depreciation calculated based on their respective useful lives as cost of sales. The rationale for this change is to redeploy a framework capable of properly evaluating the certainty of realizing earnings by clarifying
decision-making processes at the development stages of each project in line with efforts to review
and enhance the development structure. This change will enable the appropriate disclosure of
income for a given fiscal period by directly matching content production expenses, which have
tended to grow sharply in recent years, with commensurate earnings.
As a consequence of this change, cost and expenses decreased by ¥1,643 million ($17,662
thousand), in Amusement machine sales, ¥174 million ($1,880 thousand), in Amusement center
operations, ¥3,980 million ($42,782 thousand), in Consumer business, also each operating
income increased in Amusement machine sales, and Consumer business by the same amount
respectively, and operating loss decreased in Amusement center operations by the same amount.
Industry segment information for the year ended March 31, 2009 is as follows:
Millions of yen
Pachislot Pachinko
Amusement
Machine Sales
Amusement Center
Operations
Consumer Business
Others
Total
Corporate and
eliminations
Consolidated
¥161,691
¥61,926
¥71,310
¥131,361
¥2,904
¥429,194
¥ –
¥429,194
799
3,504
19
303
1,055
5,681
(5,681)
–
Total
162,490
65,430
71,330
131,664
3,959
434,876
(5,681)
429,194
Cost of sales and
operating expenses
147,962
58,540
78,851
132,606
3,605
421,565
(734)
420,830
Operating income/
(loss)
¥ 14,528
¥ 6,890
¥ (7,520)
¥ (941)
¥ 353
¥ 13,311
¥ (4,947)
¥ 8,363
Total assets
¥133,900
¥25,896
¥51,319
¥ 88,885
¥3,893
¥303,894
¥120,044
¥423,938
Depreciation and
amortization
¥ 5,301
¥ 2,081
¥15,908
¥ 3,475
¥ 178
¥ 26,946
¥ (301)
¥ 26,644
Impairment loss
¥ 286
¥ 80
¥ 5,221
¥ 877
¥ –
¥ 6,465
¥ –
¥ 6,465
¥ 4,516
¥ 1,099
¥14,893
¥ 4,823
¥ 97
¥ 25,431
¥ 1,179
¥ 26,610
Net sales;
(2) Inter-segment
Notes: 1.The Company has five operating segments based on its management control structure, and
the nature of products and markets.
2. Main products and line of business by segment:
(1) Pachislot Pachinko
Development, manufacture and sale of pachinko and pachislot
machines, pachinko and pachislot machines’ peripherals and
design of parlors
(2) Amusement Machine Sales
Development, manufacture and sale of game machines used in
amusement arcades
(3) Amusement Center Operations
Development, operation, rent and maintenance of amusement
centers
(4) Consumer Business
Development and sale of home video game software,
development, manufacture, and sale of toys, planning and
production of entertainment contents for cellular phones, etc,
planning, production and sale of animated movies
(5) Others
Information provider services, etc.
3.General corporate expenses of ¥4,748 million, which mainly consist of expenses incurred by
the Company’s administrative department, are included in ”Corporate and eliminations.”
4.Corporate assets of ¥119,364 million, which mainly consist of cash and cash equivalents of
SEGA CORPORATION and Sammy Corporation and the Company’s assets, are included in
”Corporate and eliminations.”
87
DETERMINATION
B. Geographical segment information
Geographical segment information for the year ended March 31, 2010 is as follows:
Millions of yen
Japan
North America
Europe
Others
Total
Corporate and
eliminations
¥322,012
¥27,079
¥31,985
¥3,602
¥384,679
¥ –
18,741
3,188
1,615
1,106
24,651
(24,651)
–
340,754
30,268
33,600
4,708
409,331
(24,651)
384,679
Consolidated
¥384,679
I. Net sales –
(2) Inter segment
Total
Cost of sales and
operating expenses
305,140
30,236
31,996
4,546
371,921
(23,954)
347,966
Operating income
¥ 35,614
¥ 31
¥ 1,603
¥ 161
¥ 37,410
¥ (697)
¥ 36,712
II. Total Assets
¥270,584
¥21,026
¥18,242
¥1,323
¥311,176
¥111,985
¥423,161
Consolidated
$4,134,116
Japan
North America
Europe
Others
Total
Corporate and
eliminations
$3,460,639
$291,024
$343,740
$38,710
$4,134,116
$ –
I. Net sales –
(2) Inter segment
Total
201,418
34,264
17,356
11,891
264,931
(264,931)
–
3,662,058
325,289
361,097
50,602
4,399,047
(264,931)
4,134,116
Cost of sales and
operating expenses
3,279,317
324,953
343,867
48,865
3,997,003
(257,437)
3,739,565
Operating income
$ 382,740
$ 335
$ 17,230
$ 1,737
$ 402,044
$ (7,493)
$ 394,550
II. Total Assets
$2,907,945
$225,967
$196,047
$14,221
$3,344,181
$1,203,498
$4,547,680
Notes: 1. Segmentation of countries and regions is based on geographical proximity.
2. Major countries and regions are as follows.
(1) North America ... United States.
(2) Europe ... United Kingdom, France, Germany, etc.
(3) Other ... Australia, China, Taiwan, etc.
3. General corporate expenses of ¥4,965 million ($53,362 thousand), which mainly consist of expenses incurred by the Company’s administrative department, are included in ”Corporate and eliminations.”
4.Corporate assets of ¥149,052 million ($1,601,855 thousand), which mainly consist of cash and cash equivalents of SEGA CORPORATION and Sammy Corporation and the Company’s assets, are included in
”Corporate and eliminations.”
Geographical segment information for the year ended March 31, 2009 is as follows:
Millions of yen
Japan
North America
Europe
Others
Total
Corporate and
eliminations
Consolidated
¥357,236
¥35,315
¥32,857
¥3,784
¥429,194
¥ –
¥429,194
20,615
3,965
3,366
838
28,785
(28,785)
–
377,851
39,281
36,223
4,623
457,979
(28,785)
429,194
I. Net sales –
(2) Inter segment
Total
Cost of sales and
operating expenses
369,493
38,897
34,902
4,503
447,797
(26,966)
420,830
Operating income
¥ 8,358
¥ 383
¥ 1,321
¥ 119
¥ 10,182
¥ (1,818)
¥ 8,363
II. Total Assets
¥312,909
¥21,409
¥14,717
¥1,511
¥350,548
¥ 73,389
¥423,938
(2) Europe … United Kingdom, France, Germany, etc.
(3) Other … Australia, China, Taiwan, etc
3. General corporate expenses of ¥4,748 million, which mainly consist of expenses incurred by the Company’s administrative department, are included in ”Corporate and elimination.”
4.Corporate assets of ¥119,364 million, which mainly consist of cash and cash equivalents of SEGA CORPORATION and Sammy Corporation and the Company’s assets, are included
in ”Corporate and eliminations.”
88
C. Overseas sales
Overseas sales for the year ended March 31, 2010 are as follows:
Millions of yen
Total overseas sales
North America
Europe
Other
Total
¥35,810
¥34,165
¥9,815
¥ 79,790
9.3%
8.9%
2.5%
North America
Europe
Other
Total
$384,847
$367,172
$105,484
$ 857,504
Consolidated net sales
Percentage of overseas sales to consolidated net sales
¥384,679
20.7%
$4,134,116
9.3%
8.9%
2.5%
20.7%
(2) Europe ... United Kingdom, Italy, France, Germany, etc.
(3) Other ... China, Korea, Taiwan, etc.
3. Overseas sales represent sales of the Company and its consolidated subsidiaries to countries and regions outside Japan.
Overseas sales for the year ended March 31, 2009 are as follows:
Millions of yen
North America
Europe
Other
Total
¥46,294
¥35,113
¥11,598
¥ 93,007
¥429,194
10.8%
8.2%
2.7%
21.7%
(2) Europe ... United Kingdom, Italy, France, Germany, etc.
(3) Other ... China, Korea, Taiwan, etc.
3. Overseas sales represent sales of the Company and its consolidated subsidiaries to countries and regions outside Japan.
89
DETERMINATION
NOTE 17
Related Party Transactions
Information on related party transactions for the years ended March 31, 2010 and 2009 and the related amounts as of those dates is summarized as
follows.
Material transactions of the Company with related individuals or companies for the year ended March 31, 2010 are as follows:
Millions of yen
Transactions
Name of related individual
and company
End of period account balance
Position and principal business
Description of the Company’s transaction
2010
Account
Hajime Satomi
Lease of business jet
¥240
–
FSC Co., Ltd.
Non-life insurance agent
Payment of insurance
Payment of outsourcing fee
7
10
2010
¥–
Prepaid expense
3
–
–
Transactions
and company
Hajime Satomi
FSC Co., Ltd.
2010
$2,579
85
113
2010
Account
–
$ –
Prepaid expense
39
–
–
Notes: 1. Hajime Satomi, Chairman of the Board and Chief Executive Officer, holds 53% shares directly in FSC Co., Ltd.
2. The terms and conditions of the above transactions are on an arm’s length basis. The above amounts exclude consumption taxes, but consumption taxes are included in the end of period account balance.
Material transactions of the Company’s consolidated subsidiaries with related individuals or companies for the year ended March 31, 2010 are as
follows:
Millions of yen
Transactions
and company
FSC Co., Ltd.
2010
¥34
2010
Account
Prepaid expense
¥16
Long-term prepaid expense
2
Settle up insurance
3
–
–
Payment of welfare expenses
2
–
–
Transactions
and company
2010
Account
2010
FSC Co., Ltd.
$366
Prepaid expense
$175
Settle up insurance
32
–
–
21
–
–
90
24
Material transactions of the Company with related individuals or companies for the year ended March 31, 2009 are as follows:
Millions of yen
Transactions
and company
Hajime Satomi
FSC Co., Ltd.
2009
¥240
9
10
2009
Account
–
¥–
Prepaid expense
3
–
–
Material transactions of the Company’s consolidated subsidiaries with related individuals or companies for the year ended March 31, 2009 are as
follows:
Millions of yen
Transactions
and company
Hajime Satomi
FSC Co., Ltd.
2009
2009
Provision of loan
¥2,500
–
¥ –
Collection of loan
2,500
–
–
Receipt of interest
31
–
35
Prepaid expense
2
Account
–
23
4
–
–
(Additional information) ASBJ Statement No.11, “Accounting Standard for Related Party Disclosures” and ASBJ Guidance No.13, “Guidance on
Accounting Standard for Related Party Disclosures” issued by the Accounting Standards Board of Japan on October 17, 2006, require certain additional
related party disclosures effective for years beginning on or after April 1, 2008. Pursuant to the new accounting standards, information on material
transactions of the Company’s consolidated subsidiaries with related individuals or companies is disclosed for the year ended March 31, 2009.
NOTE 18
Per Share Data
Net income per share is computed by dividing income available to common stockholders by the weighted-average number of common stock outstanding
during the period. Diluted net income per share is similar to net income per share except that the weighted-average number of common stock
outstanding is increased by the number of additional common stock that would have been outstanding if the potential common stock had been issued.
Per share data is as follows;
Yen
2010
2009
2010
¥937.80
¥882.47
$10.07
Per share data
Net assets per share
Net income (loss) per share
Net income per share (diluted)
80.46
–
(90.83)
–
0.86
–
Diluted net income per share is not disclosed, because there are no residual securities that do not dilute the Company’s net income per share for the
year ended March 31, 2010. Also, diluted net income per share is not disclosed, because net loss is recorded, and there are no residual securities that
do not dilute the Company’s net income per share for the year ended March 31, 2009.
91
DETERMINATION
NOTE 19
Supplemental Schedule of Corporate Bonds and Borrowings
Supplemental schedule of corporate bonds
Balance as of
March 31, 2010
(Millions of yen)
Balance as of
March 31, 2010
(Thousands of U.S.
dollars (Note 1))
¥ 10,000
(10,000)
13,125
(3,750)
10,000
(1,670)
10,000
$ 107,469
(107,469)
141,053
(40,300)
107,469
(17,947)
107,469
Name of bond
Issuance date
Sammy
Corporation
1st unsecured
bonds
June 26, 2003
3rd unsecured
bonds
August 27, 2008
15,000
4th unsecured
bonds
September 25,
2008
10,000
8th unsecured
bonds
December 28,
2007
10,000
9th unsecured
bonds
December 28,
2007
2,000
2,000
10th unsecured
bonds
March 25, 2008
3,000
11th unsecured
bonds
September 30,
2008
4,500
12th unsecured
bonds
June 30, 2009
–
4th unsecured
bonds
March 31, 2008
469
5th unsecured
bonds
September 25,
2008
500
6th unsecured
bonds
September 30,
2008
450
7th unsecured
bonds
June 30, 2009
–
8th unsecured
bonds
March 31, 2010
–
1st unsecured
bonds
November 25,
2003
140
2nd unsecured
bonds
November 25,
2003
70
–
–
SEGA
CORPORATION
SEGA TOYS, CO.,
LTD.
OASIS PARK
Co., Ltd.
Total
Notes:
Balance as of
March 31, 2009
(Millions of yen)
Company
¥10,000
¥56,129
Type
Date of maturity
0.41
Unsecured
June 25, 2010
Note 2
Unsecured
August 27, 2013
Note 3
Unsecured
September 25,
2013
1.22
Unsecured
December 28,
2012
21,493
1.34
Unsecured
December 28,
2012
3,000
32,240
1.30
Unsecured
March 25, 2013
3,500
(1,000)
8,350
(3,300)
238
(238)
437
(125)
393
(112)
417
(165)
500
(100)
140
(140)
–
37,614
(10,746)
89,736
(35,464)
2,557
(2,557)
4,701
(1,343)
4,231
(1,209)
4,486
(1,773)
5,373
(1,074)
1,504
(1,504)
–
1.21
Unsecured
September 30,
2013
Note 4
Unsecured
June 30, 2012
0.92
Unsecured
March 31, 2011
0.62
Note 5
1.36
Unsecured
September 25,
2013
Unsecured
September 30,
2013
0.83
Unsecured
June 29, 2012
0.74
Unsecured
March 31, 2015
1.47
Unsecured
November 25,
2010
1.30
Unsecured
November 25,
2009
¥ 62,101
¥ (20,600)
$ 667,401
$ (221,391)
–
–
1. The figures in parentheses of the “Balance as of March 31, 2010” represent the current portion of corporate bonds.
2. The interest on Sammy Corporation’s third debenture is a variable rate that uses six-month Japanese yen TIBOR.
3. The interest on Sammy Corporation’s fourth debenture is a variable rate six-month Japanese yen TIBOR added with its 0.10%.
4. The interest on SEGA CORPORATION’s twelfth debenture is a variable rate that uses six-month Japanese yen TIBOR.
5.The interest on SEGA TOYS CO., LTD.’s fifth debenture is a variable rate that is 1.00% less than the standard interest set for each interest-bearing period.
The interest rate listed above is the rate as of March 31, 2010.
6. Total amount of scheduled redemption for each fiscal year within five years after March 31, 2010 is as follows:
Millions of yen
Due within 1 year
Due after 1 year
but within 2 years
Due after 2 years
but within 3 years
Due after 3 years
but within 4 years
Due after 4 years
but within 5 years
¥20,600
¥11,892
¥25,265
¥4,243
¥100
Due within 1 year
Due after 1 year
but within 2 years
Due after 2 years
but within 3 years
Due after 3 years
but within 4 years
Due after 4 years
but within 5 years
$221,391
$127,807
$271,520
$45,607
$1,074
92
Interest rate
(%)
–
Supplemental schedule of borrowings
Balance as of
March 31, 2009
(Millions of yen)
Balance as of
March 31, 2010
(Millions of yen)
Balance as of
March 31, 2010
(Thousands of
U.S. dollars (Note 1))
Average
interest rate
(%)
¥ 4,460
¥ 1,995
$ 21,440
1.3
–
1,006
1,494
16,061
1.6
–
299
351
3,777
Note 2
Long-term borrowings (Excluding current portion)
6,740
6,173
66,346
1.8
2011-2015
Lease obligations (Excluding current portion)
1,522
1,325
14,250
Note 2
2011-2028
Accounts payable-facilities
138
1,111
11,943
–
–
Accounts payable-facilities (Excluding current portion)
178
1,262
13,564
–
2011-2013
¥14,348
¥13,714
$147,383
–
–
Category
Short-term borrowings
Current portion of long-term borrowings due within one year
Current portion of lease obligations
Repayment terms
–
Other interest-bearing debt
Total
Notes: 1. The “Average interest rate” represents weighted average interest rate over the year-end balance of loans.
2. T he average interest rate on lease obligation is not listed because lease obligation is posted in the consolidated balance sheets mainly as the amount before deduction of the amount of interest included in the
total lease amount.
3. The redemption schedule of long-term loans payable, lease obligation and interest-bearing debt (excluding current portion) after March 31, 2010 is summarized as follows:
Millions of yen
Category
Long-term borrowings
Lease obligations
Other interest-bearing debt accounts payable-facilities
Due after 1 year
but within 2 years
Due after 2 years
but within 3 years
Due after 3 years
but within 4 years
Due after 4 years
but within 5 years
Due after 5 years
¥2,957
¥3,183
¥ 13
¥13
¥ 6
291
223
125
55
629
¥ 670
¥ 592
¥ –
¥ –
¥ –
Due after 1 year
but within 2 years
Due after 2 years
but within 3 years
Due after 3 years
but within 4 years
Due after 4 years
but within 5 years
Due after 5 years
$31,781
$34,208
$ 143
$146
$ 67
3,134
2,401
1,352
599
6,761
$ 7,200
$ 6,364
$ –
$ –
$ –
Category
Long-term borrowings
Lease obligations
Other interest-bearing debt accounts payable-facilities
93
DETERMINATION
Independent Auditors’ Report
To the Shareholders and Board of Directors of
SEGA SAMMY HOLDINGS INC.:
We have audited the accompanying consolidated balance sheets of SEGA SAMMY HOLDINGS INC. and consolidated subsidiaries as of March 31,
2010 and 2009, the related consolidated statements of operations, changes in net assets and cash flows for each of the two years in the period
ended March 31, 2010, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of
SEGA SAMMY HOLDINGS INC. and consolidated subsidiaries as of March 31, 2010 and 2009, and the consolidated results of their operations and
their cash flows for each of the two years in the period ended March 31, 2010, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:
As discussed in Note 3 to the consolidated financial statements, effective April 1, 2009, a change was made in the accounting principles for
content production expenses related to game software and amusement machines.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2010 are presented
solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 1 to the consolidated financial statements.
(KPMG AZSA & Co.)
Tokyo, Japan
June 24, 2010
94
www.segasammy.com
SEGA SAMMY HOLDINGS
|| DETERMINATION ||
Annual Report 2010
Shiodome Sumitomo Building, 1-9-2 Higashi Shimbashi,
Minato-ku, Tokyo 105-0021, Japan
www.segasammy.com
Printed in Japan

hokuto ken no wallpaper

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